What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 306 added, 669 removed, 262 unchanged (79% of the section changed)

3 unchanged sentences

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

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

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

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

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

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

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

economy are in a recession.

States and municipalities across the United States have 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, 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.

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

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

The reduced economic activity resulting from these factors has severely and negatively impacted our operations.

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

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.

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.

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.

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

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

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

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

During the 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.

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

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

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.

When the U.S.

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

Although TA’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.

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

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

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

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

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.

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

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

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

• our operations, liquidity and capital needs and resources;

• conducting financial modeling and sensitivity analyses;

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

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

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

As of 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;

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

• raised $788,222 of net proceeds from the issuance of our 7.5% senior notes due 2025,

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

• raised $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,

• 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.

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

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

There are extensive uncertainties surrounding the COVID-19 pandemic.

These uncertainties include among others:

• the duration and severity of the negative economic impact;

• the strength and sustainability of any economic recovery;

• 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;

• 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.

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

Acquisitions and Dispositions

On September 20, 2019, we acquired 767 properties with 12.4 million rentable square feet for an aggregate transaction value of $2,482,382, or the SMTA Transaction.

The portfolio consisted of 767 service-oriented retail properties net leased to tenants in 23 distinct industries and 163 brands including quick service and casual dining restaurants, movie theaters, health and fitness, automotive parts and services and other service-oriented and necessity-based industries across 45 states.

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 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 $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 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.

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

As of March 31, 2021, we owned 1,108 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

Business Environment and Outlook.

The lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the COVID-19 global pandemic, along with federal, state and local government mandates intended to contain and mitigate the spread of COVID-19, which continues to have a significant negative impact on our results of operations, financial position and cash flow.

Our results of operations and cash flows from our hotels are heavily dependent on our operators’ ability to generate returns to us.

Although leisure demand at our hotels has improved through the first quarter of 2021 when compared to 2020 levels, business transient and group demand have been limited and, consistent with trends throughout the U.S.

lodging industry, continue to lag in recovery.

Although overall lodging activity continues to improve over levels seen since the beginning of the pandemic, and our current expectation is that lodging demand may improve in the second half of 2021 at a more meaningful pace than experienced to date, we expect the recovery in the lodging industry to historical levels may take several years.

We cannot predict with certainty when business levels will return to normalized historical levels after the effects of the pandemic subside.

We currently expect that the recovery with respect to business transient and group business will be gradual and likely inconsistent.

Factors such as public health, availability and effectiveness of COVID-19 vaccines, changes in business practices with regard to travel and the geopolitical environment may impact the timing, extent and pace of such recovery.

In addition, consumer confidence and leisure demand will continue to be affected by unemployment, perceptions of the safety of returning to normal activities and broader macroeconomic trends.

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 despite the operating losses we have realized during the pandemic.

For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report.

Our manager, RMR LLC, has taken various actions in response to the COVID-19 pandemic to address its operating and financial impact on us.

In addition, we are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business.

For more information regarding these actions and monitoring activities, see our 2020 Annual Report.

Management agreements and leases .

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.

At March 31, 2021, we owned 310 hotels operated under seven agreements.

We leased 305 of these hotels to our wholly owned TRSs that are managed by hotel operating companies.

We have entered an agreement to sell the other five hotels and have leased these properties to the buyer in anticipation of the sale.

We own 798 service-oriented properties with 168 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

Our condensed consolidated statements of comprehensive income include hotel operating revenues and hotel operating expenses from our managed hotels and rental income and other operating expenses from our leased hotel and net lease properties.

Many of our operating agreements and net leases contain security features, such as guarantees and security deposits, which are intended to protect minimum returns and rents due to us in accordance with our agreements regardless of property performance.

However, the effectiveness of various security features to provide us uninterrupted receipt of minimum returns and rents is not assured, especially if economic conditions generally decline for a prolonged period.

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 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.

Our condensed consolidated statements of income (loss) include hotel operating revenues and hotel operating expenses from our managed hotels and rental income and other operating expenses from our leased hotels and net lease properties.

During the quarter ended March 31, 2021, we transferred the branding and management of 88 hotels to Sonesta from Marriott.

For further information regarding these transfers, see Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In January 2021, we received a notice of termination from Hyatt that terminated our Hyatt agreement, effective as of April 8, 2021, as a result of Hyatt’s guaranty being exhausted.

On April 7, 2021, we and Hyatt agreed to a short term extension of the termination date to May 22, 2021.

We and Hyatt are currently in discussions regarding possible changes to our Hyatt agreement that may result in some or all of the hotels remaining Hyatt managed.

However, if such discussions do not result in a mutually acceptable agreement for Hyatt to continue to manage some or all of these hotels, we expect to transition management of those hotels to Sonesta on or about June 1, 2021.

For further information on our Hyatt and Sonesta agreements, see Notes 5 and 9 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Hotel Portfolio.

As of March 31, 2021, we owned 310 hotels.

In the first quarter of 2021, the U.S.

hotel industry generally realized decreases in average daily rate, or ADR, revenue per available room, or RevPAR, and occupancy compared to 2020.

During the quarter ended March 31, 2021, our 304 comparable hotels that we owned continuously and were open and operating for the entire periods being compared produced aggregate quarter over quarter decreases in ADR and RevPAR and a decline in occupancy.

We believe these results are primarily due to the disruption and displacement at certain of our hotels as a result of the COVID-19 pandemic, which began negatively affecting results in March 2020, including significant decreases in business and leisure activity in areas where some of our hotels are located, partially offset by increased demand from first responders, medical personnel and people seeking safe locations for quarantine or to remain socially distanced, particularly in our long-term or extended stay properties.

For the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020 for all our 310 hotels, ADR decreased 29.6% to $88.02, occupancy decreased 16.5 percentage points to 40.1% and RevPAR decreased 50.1% to $35.30.

For the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020 for our 304 comparable hotels that we owned continuously since January 1, 2020, ADR decreased 29.2% to $87.19, occupancy decreased 17.3 percentage points to 40.1% and RevPAR decreased 50.6% to $34.96.

Comparable hotels data .

We present revenue per available room, or RevPAR, average daily rate, or ADR, and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods.

We present RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods.

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

ADR decreased 26.7% to $89.50;

occupancy decreased 32 percentage points to 46.0%;

and RevPAR decreased 56.6% to $41.17.

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;

occupancy decreased 33 percentage points to 43.6%;

and RevPAR decreased 60.3% to $39.19.

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;

occupancy decreased 29 percentage points to 45.2%;

and RevPAR decreased 50.2% to $44.36.

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;

occupancy decreased 31 percentage points to 42.7%;

and RevPAR decreased 54.2% to $44.11.

For the quarters ended March 31, 2021 and 2020, we excluded six hotels from our comparable results.

Four were closed for major renovations and two suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

Net Lease Portfolio .

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.

As of March 31, 2021, we owned 798 net lease service-oriented retail properties with 13,452,608 square feet leased to 168 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $375,811.

Our net lease portfolio was 98.5% occupied as of March 31, 2021 with a weighted (by annual minimum rent) lease term of 10.7 years, operating under 130 brands in 21 distinct industries.

TA is our largest tenant.

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.

As of March 31, 2021, 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.

Additional details of our hotel operating agreements and our net lease agreements are set forth in Notes 5 and 9 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the tables and notes thereto below.

Acquisitions and Dispositions.

During the three months ended March 31, 2021, we acquired a land parcel adjacent to a property we own in Nashville, TN for a purchase price of $7,709, including acquisition related costs.

We sold one net lease property with 2,797 rentable square feet for $375, excluding closing costs, during the three months ended March 31, 2021.

In April 2021, we sold one hotel with 146 rooms for $9,753, excluding closing costs, and one net lease property with 32,130 square feet for $1,206, excluding closing costs.

We have entered into an agreement to sell five hotels with an aggregate of 430 rooms in four states and an aggregate carrying value of $10,699 for an aggregate sales price of $22,263, excluding closing costs.

We have also entered into agreements to sell two net lease properties with an aggregate of 35,330 square feet and an aggregate carrying value of $1,439 for an aggregate sales price of $1,581, excluding closing costs.

We currently expect these sales to be completed by the end of the second quarter of 2021.

However, these sales are subject to conditions and we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

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

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

For the Three Months Ended September 30,

Three Months Ended March 31, 2021 compared to the Three Months Ended March 31, 2020

For the Three Months Ended March 31,

Increase % Increase

2 unchanged sentences

Rental income - hotels 496 1,008 (512) (50.8) %

Rental income - net lease portfolio 96,102 68,054 28,048 41.2 %

Total rental income 96,776 73,619 23,157 31.5 %

FF&E reserve income — 863 (863) (100.0) %

Rental income - net lease 91,721 99,265 (7,544) (7.6) %

Total revenues 261,170 483,776 (222,606) (46.0) %

Hotel operating expenses 214,987 271,148 (56,161) (20.7) %

1 unchanged sentence

Depreciation and amortization - hotels 68,124 67,669 455 0.7 %

Depreciation and amortization - net lease portfolio 57,687 36,231 21,456 59.2 %

Depreciation and amortization - net lease 56,244 60,257 (4,013) (6.7) %

Total depreciation and amortization 124,368 127,926 (3,558) (2.8) %

General and administrative 12,657 14,024 (1,367) (9.7) %

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

Loss on asset impairment 1,211 16,740 (15,529) (92.8) %

Total expenses 356,640 433,597 (76,957) (17.7) %

Other operating income:

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

Loss on sale of real estate (9) (6,911) 6,902 (99.9) %

Unrealized losses on equity securities, net (6,481) (5,045) (1,436) 28.5 %

Interest income 57 262 (205) (78.2) %

Interest expense (89,391) (71,075) (18,316) 25.8 %

Loss on early extinguishment of debt — (8,451) 8,451 (100.0)

Income (loss) before income taxes and equity earnings 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) %

Loss before income taxes and equity in losses of an investee (191,294) (32,590) (158,704) 487.0 %

Income tax expense (853) (342) (511) 149.4 %

Equity in losses of an investee (2,843) (718) (2,125) 296.0 %

Net loss $ (194,990) $ (33,650) $ (161,340) 479.5 %

Weighted average shares outstanding (basic) 164,498 164,370 128 0.1 %

Weighted average shares outstanding (diluted) 164,498 164,370 128 0.1 %

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

$ (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.

Net loss per common share (basic and diluted) $ (1.19) $ (0.20) $ (0.99) 495.0 %

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

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 ($325,571).

Additional operating statistics of our hotels are included in the table on page 29.

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 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.

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

Rental income - net lease portfolio.

The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($27,902).

We increased rental income by $2,370 and reduced rental income by $3,126 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.

FF&E reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us to accumulate funds for future capital expenditures.

The terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels.

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

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

The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to a managed property and the termination of the lease for 48 vacation units at one hotel during 2020 ($968), partially offset by the conversion of five hotels from managed properties to leased properties in anticipation of sale of the properties ($456).

Rental income - net lease.

The decrease in rental income - net lease is primarily the result of the sale of properties ($3,874) and an increase in reserves for uncollectible rents and higher vacancies due to the COVID-19 pandemic ($3,670).

We reduced rental income by $1,883 and $1,646 for the 2021 and 2020 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.

Hotel operating expenses.

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 $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 $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.

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 ($123,601), the sale of eighteen hotels ($6,572) and a decrease in real estate taxes, insurance and other fees ($5,737), partially offset by a decrease in the amount of guarantee and security deposit utilization under certain of our hotel management agreements ($60,114) and hotel manager transition related costs resulting from the rebranding of 88 hotels during the 2021 period ($19,635).

Hotel operating expenses were decreased by $10,392 and $70,506 for the utilization of our security deposits and guarantees during the three months ended March 31, 2021 and March 31, 2020, respectively.

Other operating expenses.

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

The decrease in other operating expenses is primarily the result of the sale of certain net lease properties.

Depreciation and amortization - hotels.

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.

The increase in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($21,917) and the depreciation and amortization of net lease improvements we purchased since January 1, 2019 ($2,664), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($3,125).

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, 2020 ($5,891), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($4,218) and our hotel dispositions since January 1, 2020 ($1,218).

Depreciation and amortization - net lease.

The decrease in depreciation and amortization - net lease is a result of our net lease dispositions since January 1, 2020 ($3,292) and certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($721).

General and administrative.

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.

The decrease in general and administrative costs is primarily due to a decrease in business management fees and professional service expenses in the 2021 period.

Loss on asset impairment.

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 investment in TA common shares to its fair value as of September 30, 2020 and September 30, 2019.

We recorded a $1,211 loss on asset impairment during the three months ended March 31, 2021 to reduce the carrying value of two net lease properties to their estimated fair values and a $16,740 loss on asset impairment during the three months ended March 31, 2020 to reduce the carrying value of two net lease properties to their estimated fair value.

Loss on sale of real estate.

We recorded a $9 net loss on sale of real estate during the three months ended March 31, 2021 in connection with the sale of one net lease property and a $6,911 net loss on sale of real estate during the three months ended March 31, 2020 in connection with the sales of six net lease properties.

Unrealized losses on equity securities, net.

Unrealized losses on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of March 31, 2021 and 2020.

Interest income.

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

The decrease in interest income is due to lower interest rates during the 2021 period.

Interest expense.

The increase in interest expense is due to higher average outstanding borrowings and a higher weighted average interest rate in the 2021 period.

Loss on early extinguishment of debt .

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 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.

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

Net income (loss).

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

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) %

Rental income - hotels 3,045 16,700 (13,655) (81.8) %

Rental income - net lease portfolio 291,387 193,809 97,578 50.3 %

Total rental income 294,432 210,509 83,923 39.9 %

FF&E reserve income 201 3,365 (3,164) (94.0) %

Hotel operating expenses 492,906 1,076,011 (583,105) (54.2) %

Other operating expenses 11,029 4,419 6,610 149.6 %

Depreciation and amortization - hotels 199,955 200,533 (578) (0.3) %

Depreciation and amortization - net lease portfolio 177,602 101,188 76,414 75.5 %

Total depreciation and amortization 377,557 301,721 75,836 25.1 %

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

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 62,386 — 62,386 n/m

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

Unrealized gains (losses) on equity securities, net 4,409 (43,761) 48,170 (110.1) %

Interest income 283 1,774 (1,491) (84.0) %

Interest expense (223,679) (151,742) (71,937) 47.4 %

Loss on early extinguishment of debt (6,970) (8,451) 1,481 (17.5) %

Income before income taxes and equity earnings of an investee

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

Income tax expense.

Equity in earnings (losses) of an investee (4,305) 617 (4,922) (797.7) %

Net income (loss) $ (173,641) $ 274,643 $ (448,284) (163.2) %

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

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

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

$ (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 ($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 ($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.

Rental income - net lease portfolio.

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

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.

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

Hotel operating expenses.

The decrease in hotel operating expenses is a result of 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 $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 $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.

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

Depreciation and amortization - hotels.

The 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.

The increase in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($78,254) and the depreciation and amortization of net lease improvements we purchased since January 1, 2019 ($8,609), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($10,449).

General and administrative.

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 $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 $9,655 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 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.

Dividend income.

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

Unrealized gains (losses) on equity securities, net.

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

Interest income.

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

Interest expense.

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

Loss on early extinguishment of debt .

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 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.

Equity in earnings (losses) of an investee.

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

Net income (loss).

We recognized higher income taxes during the 2021 period primarily due to an increase in the amount of state and foreign sourced income subject to income taxes.

Equity in losses of an investee.

Equity in losses of an investee represents our proportionate share of the losses of Sonesta.

Our net loss and net loss per common share (basic and diluted) each increased in the 2021 period compared to the 2020 period primarily due to the revenue and expense changes discussed above.

Liquidity and Capital Resources (dollar amounts in thousands, except share amounts)

Our Managers and Tenants

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 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.

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

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

TA is our largest net lease tenant.

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

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 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 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.

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

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

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

These guarantees may provide us with continued payments if the property level cash flows fail to equal or exceed guaranteed amounts due to us.

Some of our managers and tenants, or their affiliates, may also supplement cash flows from our properties in order to make payments to us and preserve their rights to continue operating our properties even if they are not required to do so by guarantees or security deposits.

Guarantee payments, security deposit applications or supplemental payments to us, if any, made under any of our management agreements or leases do not subject us to repayment obligations, but, under some of our agreements, the manager or tenant may recover these guarantee or supplemental payments and the security deposits may be replenished from subsequent cash flows from our properties after our future minimum returns and rents are paid.

When cash flows from our hotels under certain of our agreements are less than the minimum returns or rents contractually due to us, we have utilized the applicable security features in our agreements to cover some of these shortfalls.

However, several of the guarantees and all the security deposits we hold are for limited amounts, are for limited durations and may be exhausted or expire.

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 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.

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 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;

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

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

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

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

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

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

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

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.

As of March 31, 2021, 305 of our hotels were managed by five hotel operating companies pursuant to six combination portfolio agreements.

We have entered into an agreement to sell five of our 310 hotels and have entered into a short term lease of these properties with the buyer in anticipation of the sale.

Our 798 net lease properties were leased to 168 tenants as of March 31, 2021.

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

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

As of March 31, 2021, our hotel managers included Sonesta (256 hotels), Hyatt (22 hotels), Radisson (nine hotels), Marriott (17 hotels) and IHG (one hotel).

TA is our largest tenant (179 travel centers).

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and our hotel managers’ and tenants’ businesses, 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 our other stakeholders.

As of January 1, 2021, Marriott managed 105 of our hotels under agreements we had terminated in 2020 for Marriott’s failure to pay the cumulative shortfall between the payments we had received and 80% of the cumulative priority returns due to us in accordance with the agreement.

We transferred the branding and management of 88 Marriott hotels to Sonesta in February 2021 and March 2021.

As of March 31, 2021 , Marriott managed 17 of our hotels.

We sold one of these hotels in April 2021.

For further information regarding this sale, see the Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to us, including Marriott’s assertion that we are required to refund $19,120 of minimum return advances made to us in 2020, and the validity of the timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels encumbered with a Marriott brand.

We are also seeking repayment of certain working capital advances we made to Marriott during 2020.

We have entered an agreement with Marriott regarding the 16 hotels noted above, pursuant to which we agreed to have these hotels remain Marriott branded hotels until the arbitration is resolved.

In January 2021, we received a notice of termination from Hyatt that terminated our Hyatt agreement, effective as of April 8, 2021, as a result of Hyatt’s guaranty being exhausted.

On April 7, 2021, we and Hyatt agreed to a short term extension of the termination date to May 22, 2021.

We and Hyatt are currently in discussions regarding possible changes to our Hyatt agreement that may result in some or all of the hotels remaining Hyatt managed.

TA, our largest tenant, is current on all its rent obligations to us as of May 6, 2021.

During the three months ended March 31, 2021, we collected 93.1% of rents due to us from our net lease tenants.

During April 2021, we collected 97.7% of rents due to us from our net lease tenants.

During the three months ended March 31, 2021, we entered into rent deferral agreements for $1,228 of rent with five net lease tenants.

As of March 31, 2021, we had $10,605 of deferred rents outstanding related to 45 tenants who represent approximately 2.8% of our annualized rental income of our net lease retail portfolio as of March 31, 2021.

Generally, these rent deferrals are payable by the tenants over a 12 to 24 month period.

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 50 through 51.

During the three months ended March 31, 2021 and 2020, we recorded reserves for uncollectible rents of $4,785 and $1,115, respectively, based on our assessment of whether amounts due under certain tenants’ leases are probable of collection.

We had reserves for uncollectible rents of $23,051 and $18,230 as of March 31, 2021 and December 31, 2020, respectively.

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.

2 unchanged sentences

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.

In instances where we do not have financial information for our portion of the measurement period from our tenants, we have calculated an implied EBITDAR for the period 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 net lease properties generated coverage of 2.19x and 2.28x as of March 31, 2021 and 2020, respectively.

Our Operating Liquidity and Capital Resources

2 unchanged sentences

We may receive additional returns, percentage rents and our share of the operating profits of our managed hotels after payment of management fees and other deductions, if any, either monthly or quarterly, and these amounts are usually subject to annual reconciliations.

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 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.

We believe we have sufficient liquidity to withstand the current decline in operating cash flow, fund our capital expenditures, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter.

However, 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 revenue, cash flow, and net income could decline.

Under the current challenging operating environment posed by the COVID-19 pandemic and the slowdown in U.S.

economic activity and lodging demand, we have taken steps to preserve liquidity by drawing down the remaining capacity on our $1,000,000 revolving credit facility, maintaining our quarterly distribution to our shareholders at $0.01 per share, which we expect to continue at that rate for the foreseeable future, subject to applicable REIT tax requirements, by selectively making capital expenditures, and by continuing to work with our hotel operators to reduce hotel operating expenses.

We intend to use available cash in the near term predominantly to fund operating losses at our hotels, to pay corporate expenses, including debt service, fund capital expenditures, and to pay distributions to our shareholders.

As of March 31, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we meet the required covenant level.

We may access equity markets or seek other sources of capital if favorable conditions exist for us in order to enhance our liquidity, reduce debt and to fund cash needs.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents and restricted cash at the beginning of the period $ 91,456 81,259

4 unchanged sentences

Cash and cash equivalents and restricted cash at the end of the period $ 879,551 $ 99,755

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.

The change from cash flows provided by operating activities in the 2020 period to cash flows used in operating activities for the three months ended March 31, 2021 is primarily due to lower returns earned from our hotel portfolio and higher interest expense in the 2021 period.

The decrease in cash flows used in investing activities in the 2021 period is primarily due to a decrease in real estate disposition activity and lower hotel managers’ purchases with restricted cash in the 2021 period, partially offset by our $25,443 capital contribution to Sonesta in the 2021 period and our receipt of a hotel manager’s deposit of insurance proceeds into restricted cash during the 2020 period.

The increase in cash provided by financing activities for the three months ended March 31, 2021 as compared to the prior year period is primarily due to a draw down of the remaining capacity on our $1,000,000 revolving credit facility and lower common share distributions compared to the 2020 period.

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

We lease 305 hotels to our wholly owned TRSs that are managed by hotel operating companies.

As a REIT, we do not expect to pay federal income taxes on the majority of our income;

4 unchanged sentences

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

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.

We own all the FF&E escrows for our hotels.

During the three months ended March 31, 2021, our hotel managers and tenants deposited $447 to these accounts and spent $14,198 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of March 31, 2021, there was $5,096 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 agreed to temporarily suspend the required contribution to our FF&E reserves under certain of our agreements.

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.

Such fundings are unlikely to materially increase in the near term above what we currently expect, as reduced occupancies are resulting in less usage and less wear and tear of our properties.

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 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.

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

Also, we and Marriott agreed to suspend contributions to the FF&E reserve under 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 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 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 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 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.

• No FF&E escrow deposits are required under our Wyndham agreement.

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

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.

During the three months ended March 31, 2021, we funded $28,881 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $140,000 for capital improvements to certain hotels during the last nine months of 2021 using cash on hand.

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

1 unchanged sentence

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

We funded $156 of capital improvements to properties under these lease provisions during the three months ended March 31, 2021.

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

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.

As of March 31, 2021, we had $4,114 of unspent leasing-related obligations related to certain net lease tenants.

During the three months ended March 31, 2021, we funded a $25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation using cash on hand.

During the three months ended March 31, 2021, we acquired a parcel of land adjacent to a property we own in Nashville, TN for a purchase price of $7,709 using cash on hand including acquisition related costs of $109.

During the three months ended March 31, 2021, we sold one net lease property with 2,797 square feet for net proceeds of $375, excluding closing costs.

In April 2021, we sold one hotel with 146 rooms for $9,753 and one net lease property with 32,130 square feet for net proceeds of $1,206, 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.

The aggregate net proceeds from this offering were $788,222, after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility.

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

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

We have entered into an agreement to sell 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 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 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:

We currently expect these sales to be completed by the end of the second quarter of 2021.

However, these sales are subject to conditions and we cannot be sure that we will complete these sales or that these sales will not be delayed or that the terms will not change.

We expect to use the net sales proceeds from these sales for general business purposes.

During the three months ended March 31, 2021, we declared and paid regular quarterly distributions to common shareholders using cash on hand as follows:

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

January 14, 2021 January 25, 2021 February 18, 2021 $ 0.01 $1,648

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

$ 0.01 $1,648

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 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.

On April 15, 2021, we declared a regular quarterly distribution to common shareholders of record on April 26, 2021 of $0.01 per share, or $1,648.

We expect to pay this amount on or about May 20, 2021 using cash on hand.

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 which is governed by a credit agreement with a syndicate of institutional lenders.

We are required to pay interest at the rate of LIBOR plus a premium, which was 235 basis points per annum, subject to a LIBOR floor of 0.50% at March 31, 2021, 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 March 31, 2021.

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

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 can borrow, subject to meeting certain financial covenants, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

As of March 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.85%.

On January 19, 2021, we borrowed $972,793 under our revolving credit facility as a precautionary measure to preserve financial flexibility.

As of March 31, 2021, we were fully drawn under our under our $1,000,000 revolving credit facility and remain fully drawn as of May 6, 2021.

We and our lenders amended our credit agreement governing our $1,000,000 revolving credit facility in 2020.

Among other things, the amendments waived all of the then existing financial covenants through the Waiver Period.

As a result of the amendments, among other things:

• we pledged certain equity interests of subsidiaries owning properties and will provide first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $1,835,000 as of March 31, 2021 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:

• we agreed to certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions);

• we agreed to maintain minimum liquidity of $125,000;

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

• we may not, during the Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances.

Our term debt maturities (other than our revolving credit facility) as of March 31, 2021 were as follows:

Year Maturity

2 unchanged sentences

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

We currently expect to use cash on hand, the cash flows from our operations, borrowings under our revolving credit facility, net proceeds from any asset sales and net proceeds of offerings of equity or debt securities to fund our future debt maturities, operations, capital expenditures, distributions to our shareholders and other general business purposes.

We currently expect to use cash on hand, the cash flows from our operations, borrowings under our revolving credit facility (when available), net proceeds from any asset sales and net proceeds of offerings of equity or debt securities, as allowed by our existing credit agreement, to fund our operations, capital expenditures, future debt maturities, distributions to our shareholders and other general business purposes.

When significant amounts are outstanding for an extended period of time under our revolving credit facility, or the maturities of our indebtedness approach, we currently expect to explore refinancing alternatives.

Such alternatives may include incurring additional debt, issuing new equity securities and the sale of properties.

Such alternatives may include incurring additional debt when permitted under our debt agreements, issuing new equity securities and the sale of properties.

We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

1 unchanged sentence

Although we have not historically done so, we may also assume mortgage debt on properties we may acquire or obtain mortgage financing on our existing properties.

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 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.

While we believe we will generally 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 pursuant to our debt agreements and are not permitted under our debt agreements to incur any debt while below the 1.5x debt service coverage ratio requirement under our public debt covenants as described below.

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

We have no control over market conditions.

5 unchanged sentences

Off Balance Sheet Arrangements

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.

As of March 31, 2021, 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 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 debt obligations at March 31, 2021 consisted of outstanding borrowings under our $1,000,000 revolving credit facility and $6,200,000 of publicly issued term debt.

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

These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios and our credit agreement restricts our ability to make distributions under certain circumstances.

These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios and our credit agreement currently restricts our ability to make certain investments and limits our distributions under certain circumstances.

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 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.

As of March 31, 2021, 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 and except as noted above and below.

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:

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of March 31, 2021:

Actual Results Covenant Requirement

3 unchanged sentences

Total unencumbered assets / unsecured debt 179.6% 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.

The above consolidated income available for debt service to debt service ratio as of March 31, 2021 is based on results for the first quarter of 2021 and second, third and fourth quarters of 2020.

This ratio was 2.85x as of June 30, 2020, 2.05x as of September 30, 2020, 1.56x as of December 31, 2020, and 1.12x as of March 31, 2021, which is below the required level.

We are not permitted under our debt agreements to incur additional debt while we remain below the required covenant level.

Acceleration and Cross-Default

5 unchanged sentences

Supplemental Guarantor Information

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

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

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

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

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

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

Our $800,000 of 7.50% unsecured senior notes due 2025, or the 2025 Notes, and our $450,000 of 5.5% unsecured senior notes due 2027, or the 2027 Notes, are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement.

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

Our remaining $4,950,000 of senior unsecured notes do not have the benefit of any guarantees.

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

A subsidiary guarantor's guarantee of the 2025 Notes and 2027 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investors Service, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s, or S&P, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no

default or event of default has occurred and is continuing under the indenture.

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

2 unchanged sentences

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 September 30, 2020

As of March 31, 2021

As of December 31, 2020

4 unchanged sentences

Other assets, net 1,624,660 677,408

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

Indebtedness, net $ 7,133,376 $ 6,208,590

Other liabilities 372,857 341,907

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

Nine Months Ended

September 30, 2020 Year Ended December 31, 2019

$ 916,970 $ 2,284,612

1,160,666 2,053,200

Three Months Ended

March 31, 2021

Net income (loss)

(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.

(1) Real estate properties, net as of March 31, 2021 includes $209,449 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 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.

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

As of March 31, 2021, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 142 brands across 22 industries.

Hotel Portfolio

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.

These statistics include coverage of our minimum returns or minimum rents and occupancy, ADR and RevPAR for our hotel properties.

We consider these statistics and the management agreement or lease security features also presented in the tables and related notes on the following pages to be important measures of our managers’ and tenant’s success in operating our hotel properties and their ability to continue to pay us.

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)

Annual Minimum Return/Rent (2)

Rent / Return Coverage (3)

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.

(2) Each of our hotel management agreements or leases provides for payment to us of an annual minimum return or rent, respectively.

Certain of these minimum payment amounts are secured by full or limited guarantees or security deposits as more fully described below.

In addition, certain of our hotel management agreements provide for payment to us of additional amounts to the extent of available cash flows as defined in the management agreement.

Payments of these additional amounts are not guaranteed or secured by deposits.

Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments necessary to record rent on a straight-line basis.

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

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

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.

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

We lease one additional InterContinental ® branded hotel in Puerto Rico to a subsidiary of IHG.

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 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.

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

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

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.

Accordingly, payment by Sonesta of the minimum return due to us under this management agreement is limited to the hotels' available cash flows after the payment of operating expenses, including certain management fees, and we are financially responsible for operating cash flows deficits, if any.

In addition to our minimum return, this management agreement provides for payment to us of 80% of the hotels' available cash flows after payment of hotel operating expenses, including certain management fees to Sonesta, our minimum return, working capital advances and any required FF&E reserves.

(7) We lease our 22 Hyatt Place® branded hotels in 14 states to one of our TRSs.

The hotels are managed by a subsidiary of Hyatt, under a combination management agreement that expires in 2030.

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

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

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.

In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Hyatt of working capital and guaranty advances, if any.

This additional return is not guaranteed.

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

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

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

As of 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.

In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any.

This additional return is not guaranteed.

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

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.

(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.

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

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

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

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

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 %)

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 %)

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

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

Comparable Hotels No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Three months ended March 31, Three months ended March 31, Three months ended March 31,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

Full Service 24 7,821 31.5 % 58.3 % (26.8) pts $ 106.61 $ 136.32 (21.8) % $ 33.58 $ 79.47 (57.7) %

Royal Sonesta (1)

Full Service 14 4,529 20.8 % 54.5 % (33.7) pts 143.29 190.25 (24.7) % 29.80 103.69 (71.3) %

Radisson Hotel Full Service 5 1,149 38.0 % 57.7 % (19.7) pts 90.60 130.51 (30.6) % 34.43 75.30 (54.3) %

Crowne Plaza Full Service 1 495 36.0 % 46.8 % (10.8) pts 93.92 145.17 (35.3) % 33.81 67.94 (50.2) %

Radisson Blu Full Service 2 264 35.7 % 54.8 % (19.1) pts 80.34 120.92 (33.6) % 28.68 66.26 (56.7) %

Country Inn and Suites Full Service 1 360 14.6 % 54.8 % (40.2) pts 82.07 119.40 (31.3) % 11.98 65.43 (81.7) %

Full Service Total/Average 47 14,618 28.5 % 56.5 % (28.0) pts 111.78 151.39 (26.2) % 31.86 85.54 (62.8) %

Sonesta Select (1)

Select Service 58 8,271 23.8 % 51.0 % (27.2) pts 86.46 134.69 (35.8) % 20.58 68.69 (70.0) %

Hyatt Place Select Service 22 2,724 46.6 % 59.5 % (12.9) pts 82.41 106.95 (22.9) % 38.40 63.64 (39.7) %

Courtyard Select Service 14 1,959 40.9 % 45.1 % (4.2) pts 92.51 112.78 (18.0) % 37.84 50.86 (25.6) %

Select Service Total/Average 94 12,954 31.2 % 51.9 % (20.7) pts 86.39 125.12 (31.0) % 26.95 64.94 (58.5) %

Simply Suites (1)

Extended Stay 92 11,472 54.1 % 58.2 % (4.1) pts 88.52 121.63 (27.2) % 47.89 70.79 (32.3) %

Sonesta ES Suites (1)

Extended Stay 63 7,796 55.1 % 66.7 % (11.6) pts 63.79 81.46 (21.7) % 35.15 54.33 (35.3) %

Residence Inn Extended Stay 3 342 43.7 % 50.2 % (6.5) pts 96.74 111.15 (13.0) % 42.28 55.80 (24.2) %

Extended Stay 5 430 60.8 % 66.5 % (5.7) pts 55.85 71.75 (22.2) % 33.96 47.71 (28.8) %

Extended Stay Total/Average 163 20,040 54.4 % 61.6 % (7.2) pts 78.09 103.38 (24.5) % 42.48 63.68 (33.3) %

Comparable Hotels Total/Average 304 47,612 40.1 % 57.4 % (17.3) pts $ 87.19 $ 123.22 (29.2) % $ 34.96 $ 70.73 (50.6) %

All Hotels No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Three months ended March 31, Three months ended March 31, Three months ended March 31,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

Full Service 25 8,040 31.2 % 58.2 % (27.0) pts $ 106.61 $ 136.43 (21.9) % $ 33.26 $ 79.40 (58.1) %

Royal Sonesta (1)

Full Service 16 5,303 22.7 % 51.1 % (28.4) pts 153.25 203.56 (24.7) % 34.79 104.02 (66.6) %

Radisson Hotel Full Service 5 1,149 38.0 % 57.7 % (19.7) pts 90.60 130.51 (30.6) % 34.43 75.30 (54.3) %

Crowne Plaza Full Service 1 495 36.0 % 46.8 % (10.8) pts 93.92 145.17 (35.3) % 33.81 67.94 (50.2) %

Country Inn and Suites Full Service 3 430 30.2 % 41.3 % (11.1) pts 79.75 114.89 (30.6) % 24.08 47.45 (49.2) %

Radisson Blu Full Service 1 360 14.6 % 54.8 % (40.2) pts 82.07 119.40 (31.3) % 11.98 65.43 (81.7) %

Full Service Total/Average 51 15,777 28.7 % 54.8 % (26.1) pts 115.34 156.09 (26.1) % 33.10 85.54 (61.3) %

Sonesta Select (1)

Select Service 58 8,271 23.8 % 51.0 % (27.2) pts 86.46 134.69 (35.8) % 20.58 68.69 (70.0) %

Hyatt Place Select Service 22 2,724 46.6 % 59.5 % (12.9) pts 82.41 106.95 (22.9) % 38.40 63.64 (39.7) %

Courtyard Select Service 14 1,959 40.9 % 45.1 % (4.2) pts 92.51 112.78 (18.0) % 37.84 50.86 (25.6) %

Select Service Total/Average 94 12,954 31.2 % 51.9 % (20.7) pts 86.39 125.12 (31.0) % 26.95 64.94 (58.5) %

Simply Suites (1)

Extended Stay 92 11,472 54.1 % 58.2 % (4.1) pts 88.52 121.63 (27.2) % 47.89 70.79 (32.3) %

Sonesta ES Suites (1)

Extended Stay 65 8,040 55.2 % 65.0 % (9.8) pts 63.42 81.40 (22.1) % 35.01 52.91 (33.8) %

Residence Inn Extended Stay 3 342 43.7 % 50.2 % (6.5) pts 96.74 111.15 (13.0) % 42.28 55.80 (24.2) %

Extended Stay 5 430 60.8 % 66.5 % (5.7) pts 55.85 71.75 (22.2) % 33.96 47.71 (28.8) %

Extended Stay Total/Average 165 20,284 54.5 % 61.0 % (6.5) pts 77.76 103.31 (24.7) % 42.38 63.02 (32.8) %

All Hotels Total/Average 310 49,015 40.1 % 56.6 % (16.5) pts $ 88.02 $ 125.06 (29.6) % $ 35.30 $ 70.78 (50.1) %

(1) Includes operator data for periods prior to when certain hotels were managed by Sonesta.

(2) We have entered into an agreement to sell five hotels and we have entered into a short term lease of these properties with the buyer in anticipation of the sale.

Net Lease Portfolio

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 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 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.

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.

As of March 31, 2021, our net lease properties were 98.5% occupied and we had 30 properties available for lease.

During the three months ended March 31, 2021, we entered into lease renewals for 170,327 rentable square feet at weighted (by rentable square feet) average rents that were 4.1% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 5.8 years.

Also during the three months ended March 31, 2021, we entered into new leases for an aggregate of 1,775 rentable square feet at weighted (by rentable square feet) average rents that were 5.2% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 6.0 years.

As of March 31, 2021, our net lease tenants operated across more than 130 brands.

The following table identifies the top ten brands based on investment.

of Buildings Investment (1) (3)

Percent of Total Investment Annualized

Percent of Total Investment (3)

Minimum Rent (2) (3)

5 unchanged sentences

The Great Escape 14 98,242 1.9 % 7,140 1.9 % 2.02 x

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

Lifetime Fitness 3 92,617 1.8 % 5,770 1.5 % 1.52 x

Buehler's Fresh Foods 5 76,536 1.5 % 5,657 1.5 % 4.79 x

Heartland Dental 59 61,120 1.2 % 4,493 1.2 % 3.38 x

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

Norms 10 53,673 1.0 % 3,169 0.8 % 0.47 x

Express Oil Change 23 49,724 1.0 % 3,379 0.9 % 4.14 x

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

Pizza Hut 44 49,525 1.0 % 3,522 0.9 % 1.61 x

450 1,269,597 24.5 % 87,933 23.5 % 3.07 x

4 unchanged sentences

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.

(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.

(3) As of March 31, 2021, we have six net lease properties with a carrying value of $3,106 and annual minimum rent of $240 classified as held for sale.

(4) See page 24 for our definition of coverage.

(5) Other includes 120 distinct brands with an average investment of $10,746 and average annual minimum rent of $733.

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

As of March 31, 2021, our top 10 net lease tenants based on annualized minimum rent are listed below.

Tenant Brand Affiliation No.

3 unchanged sentences

Percent of Total Annualized

Minimum Rent Coverage (4)

Minimum Rent (2) (3)

TravelCenters of America TravelCenters of America/ Petro Shopping Centers 179 $ 3,310,415 64.1 % $ 246,110 65.5 % 1.90x (5) (6)

American Multi-Cinema, Inc.

AMC Theatres 11 102,580 2.0 % 8,637 2.3 % -0.03x

Universal Pool Co., Inc.

4 unchanged sentences

Heartland Dental 59 61,120 1.2 % 4,493 1.2 % 3.38x

Eastwynn Theatres, Inc.

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 % 4.14x

Regal Cinemas, Inc.

Regal Cinemas 6 44,476 0.9 % 3,854 1.0 % 0.01x

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,183 0.8 % 4.18x

1 unchanged sentence

Automotive Remarketing Group 6 34,314 0.7 % 3,216 0.9 % 8.08x

American Multi-Cinema, Inc.

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

Subtotal, top 10 309 3,911,705 75.9 % 291,439 77.5 % 2.01x

5 unchanged sentences

(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.

(3) As of March 31, 2021, we have six net lease properties with an aggregate carrying value of $3,106 and annual minimum rent of $240 classified as held for sale.

(4) See page 24 for our definition of coverage.

1 unchanged sentence

(6) TA is our largest tenant.

We lease 179 travel centers (134 under the TravelCenters of America brand and 45 under the Petro Stopping Centers brand) to a subsidiary of TA under master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.

We lease 179 travel centers (134 under the TravelCenters of America brand and 45 under the Petro Stopping Centers brand) to a subsidiary of TA under five master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.

TA has two renewal options for 15 years each for all of the travel centers.

In addition to the payment of our minimum rent, the TA leases provide for payment to us of percentage rent based on increases in total non-fuel revenues over base levels (3% of non-fuel revenues above 2015 non-fuel revenues).

These leases provide for payment of an additional half percent (0.5%) of non-fuel revenues above 2019 non-fuel base revenues.

In addition to the payment of our minimum rent, the TA leases provide for payment to us of percentage rent based on increases in total non-fuel revenues over base levels (3.5% of non-fuel revenues above applicable base years).

TA's remaining deferred rent obligation of $35,228 is being paid in quarterly installments of $4,404 through January 31, 2023.

(7) Other includes 158 tenants with an average investment of $7,926 and average annual minimum rent of $534.

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

As of March 31, 2021, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

of Buildings Investment (1) (2)

8 unchanged sentences

Health and Fitness 14 189,215 3.7% 11,844 3.2 % 1.24x

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

Grocery Stores 19 129,219 2.5% 9,123 2.4 % 4.69x

Home Goods and Leisure 21 127,379 2.5% 10,107 2.7 % 2.02x

Medical, Dental Office 70 116,678 2.3% 9,014 2.4 % 3.54x

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 Equipment & Services 64 102,384 2.0% 7,114 1.9 % 3.28x

Automotive Dealers 9 64,756 1.3% 5,354 1.4 % 7.12x

Entertainment 4 61,436 1.2% 4,265 1.1 % 0.20x

General Merchandise Stores 5 56,321 1.1% 3,833 1.0 % 3.42x

Educational Services 9 55,647 1.0% 4,303 1.1 % 1.58x

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 26 28,987 0.5% 2,447 0.7 % 6.74x

Car Washes 5 28,658 0.6% 2,086 0.6 % 4.90x

Miscellaneous Manufacturing 6 26,984 0.5% 1,825 0.5 % 13.53x

Drug Stores and Pharmacies 8 23,970 0.5% 1,576 0.4 % 1.88x

Sporting Goods 2 14,220 0.3% 926 0.2 % 4.39x

Other 5 11,837 0.2% 2,549 0.8 % 2.68x

Legal Services 5 11,362 0.1% 1,024 0.3 % 2.06x

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 — % 3.67x

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

Vacant 14 38,572 0.7% — — % —

Vacant 30 49,546 1.0% — — % n/a

Total 798 $ 5,164,029 100.0% $ 375,811 100.0 % 2.19x

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

(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.

(2) As of March 31, 2021, we have six net lease properties with an aggregate carrying value of $3,106 and annual minimum rent of $240 classified as held for sale.

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

2 unchanged sentences

(4) See page 24 for our definition of coverage.

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

(5) Leases subject to full or partial corporate guarantee.

As of March 31, 2021, lease expirations at our net lease properties by year are as follows.

Square Feet Annualized Minimum Rent Expiring (2)

20 unchanged sentences

2040 1,739 152 0.0% 100.0%

Total 13,251,939 $ 375,811 100%

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

(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.

(2) As of March 31, 2021, we have six net lease properties with an annual minimum rent of $240 classified as held for sale.

As of March 31, 2021, shown below is the list of our top ten states based on annualized minimum rent where our net lease properties were located.

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

1 unchanged sentence

Texas 1,205,393 $ 32,318 8.6%

Illinois 1,019,885 26,147 7.1%

Ohio 1,302,273 26,392 7.0%

Illinois 1,019,885 26,072 6.9%

California 399,045 23,393 6.2%

Georgia 597,248 20,440 5.4%

Arizona 476,651 17,565 4.7%

Indiana 637,239 16,976 4.5%

Pennsylvania 529,444 16,566 4.4%

Arizona 476,651 17,002 4.6%

Florida 538,130 16,085 4.3%

New Mexico 246,478 10,994 3.0%

Nevada 190,262 9,618 2.6%

Other 6,557,038 170,386 45.4%

1 unchanged sentence

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., TA and Sonesta and others affiliated with them.

we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC;

is the managing member of RMR LLC;

Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, president and chief executive officer of RMR Inc., an officer and employee of RMR LLC, the chair of the board of directors and a managing director of TA, a director of Sonesta and, with a person related to him, is a majority owner of Sonesta;

John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC and a director of Sonesta;

and our Secretary also serves as a managing director and executive officer of RMR Inc.

and a director of Sonesta.

We also have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and which may have trustees, directors and officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc.

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

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

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

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

Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with TA and Sonesta, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov.

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., TA and Sonesta and others related to them.

For further information about these and other such relationships and related person transactions, see Notes 5, 8 and 9 t o our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2020 Annual Report, our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC.

In addition, see the section captioned “Risk Factors” in our 2020 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of applicable SEC rules, including funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

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.

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 (loss).

2 unchanged sentences

We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the item shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the items shown below.

FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

Other factors include, but are not limited to, requirements to satisfy our REIT distribution requirements, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

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 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

Our calculations of FFO and Normalized FFO for the three months ended March 31, 2021 and 2020 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended March 31,

Net loss $ (194,990) $ (33,650)

Depreciation and amortization expense 124,368 127,926

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

(109) — 9,655 (159,535)

Loss on asset impairment (1)

10,248 — 55,502 —

Loss on sale of real estate (2)

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) —

Adjustments to reflect our share of FFO attributable to an investee (4)

FFO (62,456) 123,084

Loss on early extinguishment of debt (5)

— 8,451 6,970 8,451

Gain on insurance settlement, net of tax (6)

— — (46,736) —

Adjustments to reflect our share of Normalized FFO attributable to an investee (4)

Hotel manager transition related costs (5)

Normalized FFO $ (41,996) $ 123,084

3 unchanged sentences

Basic and diluted per common share amounts:

Net income (loss)

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

Net loss $ (1.19) $ (0.20)

FFO $ (0.38) $ 0.75

2 unchanged sentences

Distributions declared per share $ 0.01 $ 0.54

(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.

and our investment in TA common shares to their fair values as of the end of the period.

We sold our shares of RMR Inc.

on July 1, 2019.

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

(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 value to tax basis difference related to this accounting in the three months ended June 30, 2020.

(1) We recorded a $1,211 loss on asset impairment during the three months ended March 31, 2021 to reduce the carrying value of two net lease properties to their estimated fair value.

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

(2) We recorded a $9 net loss on sale of one net lease property during the three months ended March 31, 2021.

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

(3) Unrealized gains (losses) on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value.

(4) Represents adjustments to reflect our proportionate share of FFO and normalized FFO related to our equity investment in Sonesta.

(5) Hotel operating expenses for the three months ended March 31, 2021 and December 31, 2020 includes $19,635 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the period.

(6) 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