What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-10 · 331 added, 177 removed, 391 unchanged (57% of the section changed)

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

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

As of June 30, 2021, we owned 1,100 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.

Since March 2020, 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 and market reactions to the pandemic.

The effects of COVID-19 continue to have a significant negative impact on our results of operations, financial position and cash flow.

Although lodging demand improved during the second quarter of 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical levels.

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.

We currently expect the recovery of the U.S.

hospitality industry to be a multi-year process and to remain uneven.

In addition, consumer confidence and lodging demand will continue to be affected by unemployment, perceptions of the safety of returning to normal activities, the continued use of video conferencing technologies rather than in person meetings and broader macroeconomic trends.

For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—Impact of COVID-19” 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.

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Management agreements and leases .

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.

At June 30, 2021, we owned 304 hotels operated under six agreements.

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

We own 796 service-oriented properties with 171 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 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.

In February and March 2021, we transitioned the branding and management of 88 hotels to Sonesta from Marriott and, in June 2021, we transitioned the branding and management of five hotels to Sonesta from Hyatt.

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.

On June 7, 2021, we and Hyatt amended our Hyatt agreement.

Under the amended agreement, Hyatt will continue to manage 17 of the 22 hotels we own for a 10-year term effective April 1, 2021.

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

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

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

For further information on our Radisson 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.

As of June 30, 2021, we owned 304 hotels.

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

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

During the quarter ended June 30, 2021, our 304 hotels that we owned as of June 30, 2021 produced aggregate quarter over quarter increases in ADR, RevPAR and occupancy.

The following table provides a summary of these revenue metrics for the periods presented which we believe are key indicators of performance at our hotels.

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 Change 2021 2020 Change

of hotels 304 304 — 304 304 —

of rooms or suites 48,439 48,439 — 48,439 48,439 —

Occupancy 56.6 % 27.6 % 29.0 pts 48.3 % 42.2 % 6.1 pts

ADR $ 100.72 $ 85.52 17.8 % $ 95.54 $ 112.43 (15.0) %

RevPAR $ 57.01 $ 23.60 141.5 % $ 46.15 $ 47.45 (2.7) %

Comparable hotels data .

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

For the 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.

For the three months ended June 30, 2021 and 2020, our comparable results exclude 21 hotels that had suspended operations during part of the periods presented.

For the six months ended June 30, 2021 and 2020, SVC’s comparable results exclude 22 hotels that had suspended operations during part of the periods presented.

The following table provides a summary of these revenue metrics for the periods presented.

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 Change 2021 2020 Change

Comparable Hotels

of hotels 283 283 — 282 282 —

of rooms or suites 42,414 42,414 — 42,292 42,292 —

Occupancy 57.9 % 30.6 % 27.3 pts 49.6 % 44.2 % 5.4 pts

ADR $ 92.59 $ 84.61 9.4 % $ 89.13 $ 106.21 (16.1) %

RevPAR $ 53.61 $ 25.89 107.1 % $ 44.21 $ 46.94 (5.8) %

We believe these results are primarily due to the improved lodging fundamentals in the current year periods and disruption and displacement at certain of our hotels as a result of the COVID-19 pandemic that negatively affected results in the prior year periods.

Net Lease Portfolio .

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.

As of June 30, 2021, we owned 796 net lease service-oriented retail properties with 13,440,784 square feet leased to 171 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $371,907.

Our net lease portfolio was 98.5% occupied as of June 30, 2021 with a weighted (by annual minimum rent) lease term of 10.5 years, operating under 130 brands in 21 distinct industries.

TA is our largest tenant.

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.

As of June 30, 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.

In March 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.

During the six months ended June 30, 2021, we sold six hotels with 576 rooms for $32,016, excluding closing costs, and three net lease properties with 38,041 square feet for $2,035, excluding closing costs.

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

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

For the Three Months Ended March 31,

Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020

Transition costs

For the Three Months Ended June 30,

Increase % Increase

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General and administrative 13,952 11,302 2,650 23.4 %

Transaction related costs 6,151 — 6,151 n/m

Loss on asset impairment 899 28,514 (27,615) (96.8) %

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Other operating income:

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) %

Gain (Loss) on sale of real estate, net 10,849 (2,853) 13,702 480.3 %

Gain on insurance settlement — 62,386 (62,386) (100.0) %

Unrealized gain on equity securities, net 2,500 3,848 (1,348) (35.0) %

Interest income 225 15 210 n/m

Interest expense (91,378) (72,072) (19,306) (26.8) %

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

Loss on early extinguishment of debt — (6,970) 6,970 100.0 %

Loss before income taxes and equity in earnings (losses) of an investee (91,634) (18,471) (73,163) (396.1) %

Income tax expense (211) (16,660) 16,449 98.7 %

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

Equity in earnings (losses) of an investee 735 (2,218) 2,953 133.1 %

Net loss $ (91,110) $ (37,349) $ (53,761) (143.9) %

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

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

Weighted average shares outstanding (basic and diluted) 164,506 164,382 124 0.1 %

Net loss per common share (basic and diluted) $ (0.55) $ (0.23) $ (0.32) (139.1) %

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.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2021, compared to the three months ended June 30, 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 ($202,867), the sale of 18 hotels ($7,564) and renovations at certain of our hotels ($4,119).

The increase in hotel operating revenues is primarily as a result of higher occupancies at certain of our hotels in the 2021 period and the negative impact the COVID-19 pandemic had on our hotels in the 2020 period ($168,408), partially offset by the sale of certain hotels since April 1, 2020 ($5,629).

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 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).

The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to managed property during 2020.

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.

The decrease in rental income - net lease is primarily the result of certain vacancies and lease restructurings ($2,885) and the sale of certain net lease properties since April 1, 2020 ($898), partially offset by of lower reserves for uncollectible rents in the 2021 period ($3,819).

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 ($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.

The increase in hotel operating expenses is a result of an increase in occupancy at certain managed hotels ($60,867), an increase in wages and benefits ($24,422) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($115,848), partially offset by the sale of certain hotels since April 1, 2020 ($4,911).

Hotel operating expenses were decreased by $5,306 and $121,155 during the three months ended June 30, 2021 and 2020, respectively, as a result of such guaranty and security deposit utilization.

Other operating expenses.

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

The increase in other operating expenses is primarily the result of higher carrying costs at vacant properties.

Depreciation and amortization - hotels.

The increase in depreciation and amortization - hotels is a result of the depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 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).

The decrease in depreciation and amortization - hotels is a result of certain of our depreciable assets becoming fully depreciated since April 1, 2020 ($4,006) and the sale of certain hotels since April 1, 2020 ($1,591), partially offset by an increase in depreciation expense from capital improvements made since April 1, 2020 ($4,281).

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).

The decrease in depreciation and amortization - net lease is a result of our net lease dispositions since April 1, 2020 ($3,668) and certain of our depreciable assets becoming fully depreciated since April 1, 2020 ($766).

General and administrative.

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.

The increase in general and administrative costs is primarily due to an increase in business management fees as a result of an increase in market capitalization ($2,331) and professional service expenses ($319) in the 2021 period.

Transaction related cos ts.

Transaction related costs for the three months ended June 30, 2021 includes $3,700 of working capital we previously funded under our Hyatt agreement as a result of the amount no longer expected to be recoverable, $1,110 of legal costs related to the arbitration claim against Marriott and $1,341 of costs related to the rebranding of certain hotels.

Loss on asset impairment.

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.

We recorded a $899 loss on asset impairment during the three months ended June 30, 2021 to reduce the carrying value of three net lease properties to their estimated fair value less costs to sell and a $28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 17 hotels and four net lease properties to their estimated fair value less costs to sell.

Gain (loss) on sale of real estate, net.

We recorded a $10,849 net gain on sale of real estate during the three months ended June 30, 2021 in connection with the sale of six hotels and two net lease properties and a $2,853 net loss on sale of real estate during the three months ended June 30, 2020 in connection with the sales of four net lease properties.

Gain on insurance settlement.

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

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

Unrealized gain on equity securities, net.

Unrealized gain 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 June 30, 2021 and 2020.

Interest income.

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

The increase in interest income is due to higher average cash balances 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 2020 for our repurchase of certain unsecured senior notes.

Income tax expense.

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.

We recognized lower income taxes during the 2021 period primarily due to a decrease in the amount of state and foreign sourced income subject to income taxes.

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

Equity in earnings (losses) of an investee.

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

Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

For the Six Months Ended June 30,

Increase % Increase

2021 2020 (Decrease) (Decrease)

Hotel operating revenues $ 449,088 $ 500,859 $ (51,771) (10.3) %

Rental income - hotels 701 2,573 (1,872) (72.8) %

Rental income - net lease portfolio 187,317 195,284 (7,967) (4.1) %

Total revenues 637,106 698,716 (61,610) (8.8) %

Hotel operating expenses 438,536 318,105 120,431 37.9 %

Other operating expenses 7,321 7,324 (3) n/m

Depreciation and amortization - hotels 134,707 135,438 (731) (0.5) %

Depreciation and amortization - net lease portfolio 111,338 119,915 (8,577) (7.2) %

Total depreciation and amortization 246,045 255,353 (9,308) (3.6) %

General and administrative 26,609 25,326 1,283 5.1 %

Transaction related costs 25,785 — 25,785 n/m

Loss on asset impairment 2,110 45,254 (43,144) 95.3 %

Total expenses 746,406 651,362 95,044 14.6 %

Other operating income:

Gain (loss) on sale of real estate, net 10,840 (9,764) 20,604 211.0 %

Gain on insurance settlement — 62,386 (62,386) (100.0) %

Unrealized loss on equity securities, net (3,981) (1,197) (2,784) (232.6) %

Interest income 282 277 5 1.8 %

Interest expense (180,769) (143,147) (37,622) (26.3) %

Loss on early extinguishment of debt — (6,970) 6,970 100.0 %

Income before income taxes and equity in losses of an investee (282,928) (51,061) (231,867) n/m

Income tax expense (1,064) (17,002) 15,938 n/m

Equity in losses of an investee (2,108) (2,936) 828 n/m

Net loss $ (286,100) $ (70,999) $ (215,101) n/m

Weighted average shares outstanding (basic and diluted) 164,502 164,376 126 0.1 %

Net loss per common share (basic and diluted) $ (1.74) $ (0.43) $ (1.31) n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Hotel operating revenues.

The decrease in hotel operating revenues is a result of decreased occupancies at certain of our managed hotels primarily as a result of the impact of the COVID-19 pandemic starting in March 2020 ($37,718) and the sale of certain of our hotels since January 1, 2020 ($14,053).

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 a result of the conversion of one hotel from a leased to managed property during 2020.

Rental income - net lease portfolio.

The decrease in rental income - net lease is primarily the result of the sale of properties since January 1, 2020 ($4,765), rent adjustments and restructuring and a decrease in below market lease revenue amortizations ($2,849) and certain tenant vacancies ($353).

Hotel operating expenses.

The increase in hotel operating expenses is primarily as a result of a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($175,962), partially offset by a decrease in hotel operating expenses as a result of a decrease in occupancy at certain managed hotels primarily as a result of the COVID-19 pandemic ($49,361), a decrease in wage and benefit costs, sales and marketing expenses at certain of our managed hotels ($3,746), and a decrease in real estate taxes at certain of our hotels ($2,424).

Hotel operating expenses were decreased by $15,696 and $191,661 during the six months ended June 30, 2021 and 2020, respectively, as a result of such guaranty and security deposit utilization.

Other operating expenses.

The decrease in other operating expenses is primarily the result of sale of certain net lease properties since January 1, 2020.

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, 2020 ($8,371) and our hotel dispositions since January 1, 2020 ($3,030), partially offset by depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 2020 ($10,670).

Depreciation and amortization - net lease portfolio.

The decrease in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties that were sold since January 1, 2020 ($7,024) and by certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($1,553).

General and administrative.

The increase in general and administrative costs is primarily due to higher business management fees as a result of increase in our market capitalization ($2,070), partially offset by lower professional fees ($787) in the 2021 period.

Transaction related cos ts.

Transaction related costs for the six months ended June 30, 2021 includes $3,700 of working capital we previously funded under our Hyatt agreement as a result of the amount no longer expected to be recoverable, $2,257 of legal costs related to the arbitration claim against Marriott and $19,828 of costs related to rebranding certain hotels.

Loss on asset impairment.

We recorded a $2,110 loss on asset impairment during the six months ended June 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell.

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

Gain (loss) on sale of real estate, net.

We recorded a $10,840 net gain on sale of real estate in the 2021 period in connection with the sales of six hotels and three net lease properties and a $9,764 net loss on sale of real estate in connection with the sales of ten net lease properties during the six months ended June 30, 2020.

Gain on insurance settlement.

In the 2020 period we recorded a $62,386 gain on insurance settlement as a result of insurance proceeds received for our then leased hotel in San Juan, PR related to Hurricane Maria.

Unrealized loss on equity securities, net.

Unrealized loss 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 June 30, 2021 and 2020.

Interest income.

The increase in interest income is due to higher average cash balances during the 2021 period.

Interest expense.

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

Loss on early extinguishment of debt .

Loss on early extinguishment of debt represents losses incurred in the 2020 period for our repurchase of certain unsecured senior notes.

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 2020 period.

Equity in earnings (losses) of an investee.

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

As of June 30, 2021, 304 of our hotels were managed by five hotel operating companies pursuant to six combination portfolio agreements.

Our 796 net lease properties were leased to 171 tenants as of June 30, 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).

As of June 30, 2021, our hotel managers included Sonesta (261 hotels), Hyatt (17 hotels), Radisson (nine hotels), Marriott (16 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.

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and on 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 effects 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.

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

We sold one Marriott hotel in April 2021.

As of June 30, 2021 , Marriott managed 16 of our hotels.

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.

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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.

On June 7, 2021, we and Hyatt amended our Hyatt agreement.

Under the amended agreement, Hyatt will continue to manage 17 of the 22 hotels we own for a 10-year term effective April 1, 2021.

The agreement sets our annual minimum return at $12,000, and Hyatt provided us with a new $30,000 limited guarantee for 75% of the aggregate annual minimum returns due to us beginning in 2023.

Under the amended agreement a management fee of 5% of gross room revenues payable to Hyatt will be an operating cost paid senior to our minimum return.

Hyatt may also earn a 20% incentive management fee after payment of our annual minimum return and reimbursement of certain advances, if any.

We also agreed to fund approximately $50,000 of renovations that are expected to be completed by the end of 2022.

We transitioned the branding and management of the remaining five hotels to Sonesta in June 2021.

During the three months ended June 30, 2021, we entered into rent deferral agreements for $1,121 of rent with two net lease tenants.

We had $10,564 of deferred rents outstanding related to 35 tenants who represent approximately 2.9% of our annualized rental income of our net lease retail portfolio as of June 30, 2021.

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

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.

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.

As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic conditions, 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.

During the three months ended June 30, 2021 and 2020, we recorded reserves for uncollectible rents of $1,176 and $4,995, respectively, and for the six months ended June 30, 2021 and 2020, we recorded reserves for uncollectible rents of $5,960 and $5,905, respectively, based on our assessment of whether amounts due under certain tenants’ leases are probable of collection.

We had reserves for uncollectible rents of $23,786 and $18,230 as of June 30, 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.

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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.

Our net lease properties generated coverage of 2.19x and 2.28x as of March 31, 2021 and 2020, respectively.

Our net lease properties generated coverage of 2.29x and 2.16x as of June 30, 2021 and 2020, respectively.

Our Operating Liquidity and Capital Resources

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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.

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

economic activity and lodging demand beginning in March 2020, 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 any operating losses at our hotels, to pay corporate expenses, including debt service, fund capital expenditures, and to pay distributions to our shareholders.

As of June 30, 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):

Three Months Ended March 31,

Six Months Ended June 30,

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

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Cash and cash equivalents and restricted cash at the end of the period $ 916,625 $ 49,858

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.

The change from cash flows provided by operating activities in the 2020 period to cash flows used in operating activities in the 2021 period 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 hotel managers’ purchases with restricted cash and a decrease in real estate dispositions in the 2021 period, partially offset by an investment in Sonesta we made 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 2021 period 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, a decrease in net senior notes issuances 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.

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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.

During the six months ended June 30, 2021, our hotel managers and tenants deposited $1,469 to these accounts and spent $22,959 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of June 30, 2021, there was $1,295 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.

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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.

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.

During the six months ended June 30, 2021, capital improvements in excess of FF&E reserves available to our hotels were $53,431.

We currently expect to fund $100,000 for capital improvements to certain hotels during the last six months of 2021 using cash on hand.

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

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

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

We funded $227 of capital improvements to properties under these lease provisions during the six months ended June 30, 2021.

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

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.

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:

As of June 30, 2021, we had $4,470 of unspent leasing-related obligations related to certain net lease tenants.

In March 2021, we funded a $25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation using cash on hand.

In March 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 six months ended June 30, 2021, we sold six hotels with an aggregate of 576 rooms for net proceeds of $31,214 in two separate transactions and we also sold three net lease properties with 38,041 square feet for net proceeds of $1,914.

We used the net proceeds from these sales to repay amounts outstanding under our revolving credit facility and for general business purposes.

We are currently marketing for sale 69 Sonesta branded hotels (46 extended stay hotels with 5,404 keys, 19 select service hotels with 2,461 keys and four full service hotels with 1,098 keys) located in 27 states with an aggregate net carrying value of $627,302 as of June 30, 2021.

We expect these sales to be completed by the end of the first quarter of 2022.

We also entered into agreements to sell four net lease properties with an aggregate of 20,712 square feet and an aggregate carrying value of $1,678 for an aggregate sales price of $2,165, excluding closing costs.

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

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

During the six months ended June 30, 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

April 15, 2021 April 26, 2021 May 20, 2021 0.01 1,648

$ 0.02 $ 3,296

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.

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

We expect to pay this amount on or about August 19, 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.

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 by two additional six-month periods.

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.

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 June 30, 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 June 30, 2021.

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

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%.

As of June 30, 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.

As of June 30, 2021, we were fully drawn under our $1,000,000 revolving credit facility and remain fully drawn as of August 4, 2021.

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

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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 pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $1,834,420 as of June 30, 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;

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• 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:

Our term debt maturities (other than our revolving credit facility) as of June 30, 2021 were as follows:

Year Maturity

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

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

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

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

Off Balance Sheet Arrangements

As of March 31, 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.

As of June 30, 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 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 debt obligations at June 30, 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.

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

As of March 31, 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.

As of June 30, 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

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:

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of June 30, 2021:

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 179.1% Minimum 150%

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.

The above consolidated income available for debt service to debt service ratio as of June 30, 2021 is based on results for the first and second quarters of 2021 and third and fourth quarters of 2020.

This ratio was 2.05x as of September 30, 2020, 1.56x as of December 31, 2020, 1.12x as of March 31, 2021 and 1.00x as of June 30, 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.

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

As of March 31, 2021

As of June 30, 2021

As of December 31, 2020

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Other liabilities 376,245 341,907

Three Months Ended

March 31, 2021

Six Months Ended

June 30, 2021

Net income (loss)

(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.

(1) Real estate properties, net as of June 30, 2021 includes $770,507 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, 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.

As of June 30, 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

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

Comparable Hotels No.

Comparable Hotels* )

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,

of Hotels Three months ended June 30, Three months ended June 30, Three months ended June 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Select Service Total/Average 93 12,808 45.7 % 15.9 % 29.8 pts 96.57 90.86 6.3 % 44.13 14.45 205.5 %

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 91 11,326 70.9 % 41.4 % 29.5 pts 94.74 93.36 1.5 % 67.17 38.65 73.8 %

Sonesta Simply Suites (1)

Extended Stay 64 7,918 73.3 % 55.8 % 17.5 pts 67.75 65.02 4.2 % 49.66 36.28 36.9 %

Residence Inn Extended Stay 3 342 56.4 % 34.0 % 22.4 pts 107.52 103.28 4.1 % 60.64 35.12 72.7 %

Extended Stay Total/Average 158 19,586 71.6 % 47.1 % 24.5 pts 83.73 79.89 4.8 % 59.95 37.63 59.3 %

Comparable Hotels Total/Average 283 42,414 57.9 % 30.6 % 27.3 pts $ 92.59 $ 84.61 9.4 % $ 53.61 $ 25.89 107.1 %

Comparable Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Six months ended June 30, Six months ended June 30, Six months ended June 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

Full Service 18 6,110 41.1 % 40.7 % 0.4 pts $ 104.90 $ 126.05 (16.8) % $ 43.11 $ 51.30 (16.0) %

Royal Sonesta (1)

Full Service 7 2,002 29.0 % 32.6 % (3.6) pts 145.12 158.28 (8.3) % 42.08 51.60 (18.4) %

Radisson Hotel Full Service 4 969 46.2 % 39.2 % 7.0 pts 97.55 113.00 (13.7) % 45.07 44.30 1.7 %

Crowne Plaza Full Service 1 495 44.3 % 28.3 % 16.0 pts 103.32 135.35 (23.7) % 45.77 38.30 19.5 %

Radisson Blu Full Service 1 84 43.5 % 42.6 % 0.9 pts 82.66 83.44 (0.9) % 35.96 35.55 1.2 %

Country Inn and Suites Full Service 1 360 18.0 % 32.2 % (14.2) pts 96.11 116.44 (17.5) % 17.30 37.49 (53.9) %

Full Service Total/Average 32 10,020 38.5 % 38.0 % 0.5 pts 109.65 129.92 (15.6) % 42.22 49.37 (14.5) %

Sonesta Select (1)

Select Service 63 8,888 32.4 % 32.5 % (0.1) pts 91.38 124.00 (26.3) % 29.61 40.30 (26.5) %

Hyatt Place Select Service 17 2,107 56.4 % 44.0 % 12.4 pts 92.36 101.15 (8.7) % 52.09 44.51 17.0 %

Courtyard Select Service 13 1,813 45.3 % 28.1 % 17.2 pts 92.19 100.94 (8.7) % 41.76 28.36 47.2 %

Select Service Total/Average 93 12,808 38.1 % 33.8 % 4.3 pts 91.76 116.39 (21.2) % 34.96 39.34 (11.1) %

Sonesta ES Suites (1)

Extended Stay 91 11,326 62.5 % 49.7 % 12.8 pts 92.07 109.61 (16.0) % 57.54 54.48 5.6 %

Sonesta Simply Suites (1)

Extended Stay 63 7,796 64.2 % 61.3 % 2.9 pts 66.16 74.06 (10.7) % 42.47 45.40 (6.4) %

Residence Inn Extended Stay 3 342 50.1 % 42.1 % 8.0 pts 102.84 107.98 (4.8) % 51.52 45.46 13.3 %

Extended Stay Total/Average 157 19,464 63.0 % 54.2 % 8.8 pts 81.61 93.48 (12.7) % 51.41 50.67 1.5 %

Comparable Hotels Total/Average 282 42,292 49.6 % 44.2 % 5.4 pts $ 89.13 $ 106.21 (16.1) % $ 44.21 $ 46.94 (5.8) %

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

For the three months ended June 30, 2021 and 2020, our comparable results excluded 21 hotels that had suspended operations during part of the periods presented and for the six months ended June 30, 2021 and 2020, our comparable results excluded 22 hotels that had suspended operations during part of the periods presented.

All Hotels No.

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Service Level No.

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

of Hotels Three months ended June 30, Three months ended June 30, Three months ended June 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Select Service Total/Average 93 12,808 45.7 % 15.9 % 29.8 pts 96.57 90.86 6.3 % 44.13 14.45 205.5 %

Simply Suites (1)

Simply ES Suites (1)

Extended Stay 92 11,472 70.9 % 40.8 % 30.1 pts 94.97 93.36 1.7 % 67.33 38.09 76.8 %

Sonesta ES Suites (1)

Sonesta Simply Suites (1)

Extended Stay 65 8,040 73.4 % 55.4 % 18.0 pts 67.63 64.96 4.1 % 49.64 35.99 37.9 %

Residence Inn Extended Stay 3 342 56.4 % 34.0 % 22.4 pts 107.52 103.28 4.1 % 60.64 35.12 72.7 %

Extended Stay Total/Average 160 19,854 71.6 % 46.6 % 25.0 pts 83.78 79.80 5.0 % 59.99 37.19 61.3 %

All Hotels Total/Average 304 48,439 56.6 % 27.6 % 29.0 pts $ 100.72 $ 85.52 17.8 % $ 57.01 $ 23.60 141.5 %

All Hotels No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Six months ended June 30, Six months ended June 30, Six months ended June 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

Full Service 25 8,040 41.4 % 37.6 % 3.8 pts $ 118.41 $ 129.86 (8.8) % $ 49.02 $ 48.83 0.4 %

Royal Sonesta (1)

Full Service 16 5,303 30.6 % 29.7 % 0.9 pts 172.74 197.36 (12.5) % 52.86 58.62 (9.8) %

Radisson Hotel Full Service 5 1,149 43.4 % 36.4 % 7.0 pts 96.16 123.51 (22.1) % 41.73 44.96 (7.2) %

Crowne Plaza Full Service 1 495 44.3 % 28.3 % 16.0 pts 103.32 135.35 (23.7) % 45.77 38.30 19.5 %

Country Inn and Suites Full Service 3 430 42.0 % 25.5 % 16.5 pts 95.36 110.48 (13.7) % 40.05 28.17 42.2 %

Radisson Blu Full Service 1 360 18.0 % 32.2 % (14.2) pts 96.11 116.44 (17.5) % 17.30 37.49 (53.9) %

Full Service Total/Average 51 15,777 37.6 % 34.2 % 3.4 pts 129.46 147.41 (12.2) % 48.68 50.41 (3.4) %

Sonesta Select (1)

Select Service 63 8,888 39.5 % 32.5 % 7.0 pts 91.38 124.00 (26.3) % 36.10 40.30 (10.4) %

Hyatt Place Select Service 17 2,107 65.2 % 44.0 % 21.2 pts 92.36 101.15 (8.7) % 60.22 44.51 35.3 %

Courtyard Select Service 13 1,813 53.4 % 28.1 % 25.3 pts 92.19 100.94 (8.7) % 49.23 28.36 73.6 %

Select Service Total/Average 93 12,808 38.1 % 33.8 % 4.3 pts 91.76 116.39 (21.2) % 34.96 39.34 (11.1) %

Simply ES Suites (1)

Extended Stay 92 11,472 70.9 % 49.5 % 21.4 pts 92.20 109.98 (16.2) % 65.37 54.44 20.1 %

Sonesta Simply Suites (1)

Extended Stay 65 8,040 73.4 % 60.2 % 13.2 pts 65.83 73.83 (10.8) % 48.32 44.45 8.7 %

Residence Inn Extended Stay 3 342 56.4 % 42.1 % 14.3 pts 102.84 107.98 (4.8) % 58.00 45.46 27.6 %

Extended Stay Total/Average 160 19,854 63.0 % 53.7 % 9.3 pts 81.43 93.54 (12.9) % 51.30 50.23 2.1 %

1 unchanged sentence

(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 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.

As of June 30, 2021, our net lease properties were 98.5% occupied and we had 32 properties available for lease.

During the six months ended June 30, 2021, we entered into lease renewals for 352,284 rentable square feet at weighted (by rentable square feet) average rents that were 5.1% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 11.7 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.

Also during the six months ended June 30, 2021, we entered into new leases for an aggregate of 65,551 rentable square feet at weighted (by rentable square feet) average rents that were 58.4% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 11.0 years.

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

As of June 30, 2021, our net lease tenants operated across more than 130 brands.

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

8 unchanged sentences

The Great Escape 14 98,242 1.9 % 7,140 1.9 % 1.96x

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

Life Time Fitness 3 92,617 1.8 % 5,770 1.6 % 1.12x

Buehler's Fresh Foods 5 76,536 1.5 % 5,657 1.5 % 5.90x

9 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 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.

(3) As of June 30, 2021, we have eight net lease properties with a carrying value of $4,259 and annual minimum rent of $255 classified as held for sale.

(4) See page 28 for our definition of coverage.

(5) Other includes 120 distinct brands with an average investment of $10,546 and average annual minimum rent of $718.

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

As of June 30, 2021, our top 10 net lease tenants based on annualized minimum rent are listed below.

Tenant Brand Affiliation No.

13 unchanged sentences

Heartland Dental 59 61,120 1.2 % 4,561 1.2 % 4.01x

Norms Restaurants, LLC Norms 10 53,673 1.0 % 1,584 0.4 % 0.47x

Express Oil Change, L.L.C.

3 unchanged sentences

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,183 0.9 % 4.18x

Automotive Remarketing Group, Inc.

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

Subtotal, top 10 313 3,931,064 76.3 % 289,385 77.8 % 2.04x

5 unchanged sentences

(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.

(3) As of June 30, 2021, we have eight net lease properties with an aggregate carrying value of $4,259 and annual minimum rent of $255 classified as held for sale.

(4) See page 28 for our definition of coverage.

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

(5) TA is our largest tenant.

4 unchanged sentences

(6) Other includes 161 tenants with an average investment of $7,629 and average annual minimum rent of $513.

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

As of June 30, 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)

6 unchanged sentences

Restaurants-Casual Dining 57 205,670 4.0% 11,023 3.0 % 1.50x

Movie Theaters 22 190,725 3.7% 15,091 4.0 % 0.01x

Health and Fitness 15 197,696 3.8% 11,925 3.2 % 1.05x

Movie Theaters 22 190,725 3.7% 14,262 3.8 % -0.18x

Grocery Stores 19 129,219 2.5% 9,123 2.5 % 5.37x

6 unchanged sentences

Educational Services 9 55,647 1.1% 4,226 1.0 % 1.24x

Miscellaneous Manufacturing 7 32,873 0.6% 2,433 0.7 % 14.49x

Building Materials 26 28,987 0.6% 2,458 0.7 % 4.82x

Car Washes 5 28,658 0.6% 2,128 0.6 % 4.82x

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

Drug Stores and Pharmacies 7 19,251 0.4% 1,258 0.3 % 1.77x

Sporting Goods 2 14,220 0.3% 926 0.2 % 4.42x

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

Legal Services 5 11,362 0.2% 1,024 0.3 % -2.50x

Other 4 10,417 0.1% 2,344 0.6 % 5.08x

Dollar Stores 3 2,971 —% 186 0.1 % 3.69x

2 unchanged sentences

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

(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.

(2) As of June 30, 2021, we have eight net lease properties with an aggregate carrying value of $4,259 and annual minimum rent of $255 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 28 for our definition of coverage.

(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.

As of June 30, 2021, lease expirations at our net lease properties by year are as follows.

Square Feet Annualized Minimum Rent Expiring (2)

20 unchanged sentences

2040 1,739 153 0.0% 99.4%

2041 29,384 339 0.1% 99.5%

2042 — — 0.0% 99.5%

2043 — — 0.0% 99.5%

2044 — — 0.0% 99.5%

2045 63,490 1,583 0.5% 100.0%

Total 13,234,174 $ 371,907 100%

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

(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.

(2) As of June 30, 2021, we have eight net lease properties with an annual minimum rent of $255 classified as held for sale.

As of June 30, 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.

7 unchanged sentences

Indiana 637,239 16,994 4.6%

Pennsylvania 529,444 16,566 4.4%

Florida 538,130 16,097 4.3%

Pennsylvania 529,444 15,819 4.3%

Nevada 190,262 9,618 2.6%

19 unchanged sentences

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

Our calculations of FFO and Normalized FFO for the three months ended March 31, 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,

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 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 June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

Net loss $ (91,110) $ (37,349) $ (286,100) $ (70,999)

1 unchanged sentence

Loss on asset impairment (1)

Loss on sale of real estate (2)

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

899 28,514 2,110 45,254

(Gain) loss on sale of real estate, net (2)

(10,849) 2,853 (10,840) 9,764

Unrealized (gains) loss on equity securities, net (3)

(2,500) (3,848) 3,981 1,197

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

1,034 327 1,499 439

FFO 19,151 117,924 (43,305) 241,008

Loss on early extinguishment of debt (5)

— 6,970 — 6,970

Gain on insurance settlement, net of tax (6)

— (46,736) — (46,736)

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

Hotel manager transition related costs (5)

538 — 1,363 —

Transaction related costs (7)

6,151 — 25,785 —

Normalized FFO $ 25,840 $ 78,158 $ (16,157) $ 201,242

Weighted average shares outstanding (basic) 164,498 164,370

Weighted average shares outstanding (diluted) (6)

Weighted average shares outstanding (basic and diluted) (8)

164,506 164,382 164,502 164,376

5 unchanged sentences

Distributions declared per share $ 0.01 $ 0.01 $ 0.02 $ 0.55

(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.

(1) We recorded a $899 loss on asset impairment during the three months ended June 30, 2021 to reduce the carrying value of three net lease properties to their estimated fair value less costs to sell and a $28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and four net lease properties to their estimated fair value less costs to sell.

We recorded a $2,110 loss on asset impairment during the six months ended June 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell and a $45,254 loss on asset impairment during the six months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and six net lease properties to their estimated fair value less costs to sell.

(2) We recorded a $10,849 net gain on sale of real estate during the three months ended June 30, 2021 in connection with the sale of six hotels and two net lease properties.

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

We recorded a $10,840 net gain on sale of real estate during the six months ended June 30, 2021 in connection with the sale of six hotels and three net lease properties and recorded a net loss on sale of real estate of $9,764 during the six months ended June 30, 2020 in connection with the sale of ten 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.

(5) We recorded a $6,970 loss on early extinguishment of debt, during the three and six months ended June 30, 2020, related to the repurchase of certain of our senior notes.

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

Under GAAP, We were required to increase the building basis of this 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 during the three and six months ended June 30, 2020.

(7) Transaction related costs for the three months ended June 30, 2021 includes $3,700 of working capital we previously funded under our Hyatt agreement as a result of the amount no longer being expected to be recoverable, $1,110 of legal costs related to our arbitration claim against Marriott and $1,341 of hotel manager transition costs.

Transaction costs for the three months ended March 31, 2021 included $19,634 of hotel manager transition related costs resulting from the rebranding of certain hotels during the period.

(8) 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