What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 167 added, 168 removed, 554 unchanged (38% of the section changed)

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

As of June 30, 2021, we owned 1,100 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

As of September 30, 2021, we owned 1,098 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

Business Environment and Outlook.

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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.

Although lodging demand improved during the three and nine months ended September 30, 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical pre-pandemic levels.

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

We currently expect the recovery of the U.S.

We also 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.

We are closely monitoring the impacts of the COVID-19 pandemic on all aspects of our business, specifically, but not limited to, labor availability and cost pressures from supply chain disruptions and commodity price inflation in our hotel portfolio.

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.

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Management agreements and leases .

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

At September 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 794 service-oriented properties with 175 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.

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.

Our condensed consolidated statements of comprehensive 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.

In February and March 2021, we transitioned the branding and management of 88 hotels to Sonesta from Marriott, in June 2021, we transitioned the branding and management of five hotels to Sonesta from Hyatt and on November 1, 2021, we transitioned the branding and management of one hotel to Sonesta from Radisson.

For further information regarding these transitions, see Note 5 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.

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

On November 1, 2021, we and Radisson amended our Radisson agreement.

Under our amended Radisson agreement, Radisson will continue to manage eight of the nine hotels we own for a 10-year term effective August 1, 2021.

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

Hotel Portfolio.

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,

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

In the three and nine months ended September 30, 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 the corresponding 2020 periods.

During the quarter ended September 30, 2021, our hotel portfolio produced aggregate quarter over quarter increases in ADR, RevPAR and occupancy.

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

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

2021 2020 Change 2021 2020 Change

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

For the three months ended June 30, 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.

For the three months ended September 30, 2021 and 2020, our comparable results exclude 12 hotels that had suspended operations during part of the periods presented.

For the nine months ended September 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,

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

2021 2020 Change 2021 2020 Change

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Net Lease Portfolio .

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.

As of September 30, 2021, we owned 794 service-focused retail net lease properties with 13,574,656 square feet leased to 175 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $370,945.

Our net lease portfolio was 98.2% occupied as of September 30, 2021 with a weighted (by annual minimum rent) lease term of 10.3 years, operating under 134 brands in 21 distinct industries.

TA is our largest tenant.

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.

As of September 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 $246,111.

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.

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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.

During the nine months ended September 30, 2021, we sold six hotels with 576 rooms for $32,016, excluding closing costs, and five net lease properties with 44,680 square feet for $2,705, excluding closing costs.

In October 2021, we sold one net lease property with 7,070 rentable square feet for a sales price of $915, excluding closing costs.

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

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

Transition costs

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

Increase % Increase

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Other operating income:

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) %

Gain on sale of real estate, net 94 109 (15) (13.8) %

Unrealized gain on equity securities, net 24,348 5,606 18,742 334.3 %

Interest income 225 15 210 n/m

Interest income 203 6 197 3,283.3 %

Interest expense (92,458) (80,532) (11,926) 14.8 %

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

Loss before income taxes and equity in earnings (losses) of an investee (61,927) (101,569) 39,642 (39.0) %

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

Income tax benefit 55 296 (241) (81.4) %

Equity in earnings (losses) of an investee 2,158 (1,369) 3,527 (257.6) %

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Net loss per common share (basic and diluted) $ (0.36) $ (0.62) $ 0.26 (41.9) %

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.

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

Hotel operating revenues.

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).

The increase in hotel operating revenues is primarily as a result of higher occupancies and average rates 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 ($146,353), partially offset by the sale of certain hotels since July 1, 2020 ($7,697).

Additional operating statistics of our hotels are included in the table on page 23.

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Rental income - net lease.

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).

The increase in rental income - net lease is primarily the result of the reduction of reserves for uncollectible amounts in the 2021 period as compared to an increase in reserves for uncollectible amounts in the 2020 period ($7,743), partially offset by certain vacancies and lease restructurings ($3,610).

Hotel operating expenses.

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.

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels ($36,343), an increase in wages and benefits ($31,901), an increase in utilities and management fees ($14,957) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($30,474), partially offset by the sale of certain hotels since July 1, 2020 ($3,243).

Other operating expenses.

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Depreciation and amortization - hotels.

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).

The increase in depreciation and amortization - hotels is a result an increase in depreciation expense from capital improvements made since July 1, 2020 ($2,429), partially offset by the sale of certain hotels and certain of our depreciable assets becoming fully depreciated since July 1, 2020 ($881).

Depreciation and amortization - net lease.

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).

The increase in depreciation and amortization - net lease is primarily the result of an increase in depreciation expense from capital improvements made since July 1, 2020 ($717), partially offset by the sale of certain net lease properties since July 1, 2020 and certain of our depreciable assets becoming fully depreciated since July 1, 2020 ($306).

General and administrative.

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.

The increase in general and administrative costs is primarily due to an increase in business management fees as a result of an increase in our market capitalization ($2,152), partially offset by a decrease in professional service expenses ($134) 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.

Transaction related costs for the three months ended September 30, 2021 are primarily related to our arbitration proceedings with Marriott.

Loss on asset impairment.

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.

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 less costs to sell.

Gain on sale of real estate, net.

We recorded a $94 net gain on sale of real estate during the three months ended September 30, 2021 in connection with the sale of two net lease properties and 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 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.

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 September 30, 2021 and 2020.

Interest income.

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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 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.

Income tax benefit.

The decrease in income tax benefit is primarily due to a decrease in our net state tax benefit during the 2021 period, partially offset by foreign sourced income tax expense.

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,

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

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

For the Nine Months Ended September 30,

Increase % Increase

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Hotel operating expenses 723,769 492,906 230,863 46.8 %

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

Other operating expenses 11,758 11,029 729 6.6 %

Depreciation and amortization - hotels 200,772 199,955 817 0.4 %

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

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

Unrealized gain on equity securities, net 20,367 4,409 15,958 (361.9) %

Interest income 485 283 202 71.4 %

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Income tax expense (1,009) (16,706) 15,697 n/m

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

Equity in earnings (losses) of an investee 50 (4,305) 4,355 n/m

Net loss $ (345,814) $ (173,641) $ (172,173) n/m

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Net loss per common share (basic and diluted) $ (2.10) $ (1.06) $ (1.04) 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.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2021, compared to the nine months ended September 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).

The increase in hotel operating revenues is a result of higher occupancies and higher average rates 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 ($108,635), partially offset by the sale of certain of our hotels since January 1, 2020 ($21,751).

Additional operating statistics of our hotels are included in the table on page 23.

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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).

The decrease in rental income - net lease is primarily the result of the sale of certain net lease properties since January 1, 2020 ($5,408) and the result of certain vacancies and lease restructurings ($4,996), partially offset by the net reduction of reserves for uncollectible amounts in the 2021 period ($5,019).

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.

The increase in hotel operating expenses is primarily the result of an increase in occupancy at certain managed hotels ($23,038), an increase in management fees ($22,994) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($206,436), partially offset by the sale of certain hotels since January 1, 2020 ($10,287) and a decrease in wages and benefits ($10,490).

Other operating expenses.

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

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

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).

The increase in depreciation and amortization - hotels is the result of an increase in depreciation expense from capital improvements made since January 1, 2020 ($4,640), partially offset by the sale of certain hotels and certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($3,911).

Depreciation and amortization - net lease portfolio.

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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.

The increase in general and administrative costs is primarily due to higher business management fees as a result of an 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.

Transaction related costs for the nine months ended September 30, 2021 included $19,971 of hotel manager transition related costs related to rebranding certain hotels, $5,263 of legal costs related to the arbitration proceedings with Marriott and $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.

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.

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, 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.

We recorded a $10,934 net gain on sale of real estate in the 2021 period in connection with the sales of six hotels and five net lease properties and a $9,655 net loss on sale of real estate in connection with the sales of 15 net lease properties during the nine months ended September 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.

Unrealized gain on equity securities, net.

Interest income.

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Our Managers and Tenants

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.

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

Our 794 net lease properties were leased to 175 tenants as of September 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 June 30, 2021, our hotel managers included Sonesta (261 hotels), Hyatt (17 hotels), Radisson (nine hotels), Marriott (16 hotels) and IHG (one hotel).

As of September 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).

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We sold one Marriott hotel in April 2021.

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

As of September 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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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.

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

Our amended Hyatt 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 our amended Hyatt 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 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 that Hyatt previously managed to Sonesta in June 2021.

On November 1, 2021, we and Radisson amended our Radisson agreement.

Under our amended Radisson agreement, Radisson will continue to manage eight of the nine hotels we own for a 10-year term effective August 1, 2021.

Our amended Radisson agreement sets our annual minimum return at $10,200 and Radisson has provided us with a new $22,000 limited guarantee for 75% of the aggregate annual minimum returns beginning in 2023.

Under our amended Radisson agreement, a management fee of 5% of gross room revenues for each hotel operated under the Country Inn & Suites brand and a management fee of 3% of gross room revenues for each hotel managed under the Radisson Hotel brand payable to Radisson will be an operating cost paid senior to our minimum return.

Radisson 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 $12,000 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 transitioned the branding and management of the ninth hotel that Radisson previously managed to Sonesta on November 1, 2021.

During the three months ended September 30, 2021, we entered into a rent deferral agreement for $2,852 of rent with one net lease tenant.

We had $10,827 of deferred rents outstanding related to 15 tenants who represent approximately 2.9% of our annualized rental income of our net lease retail portfolio as of September 30, 2021.

Generally, the rent deferrals we have entered into 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.

In addition, if any of our tenants are unable to continue as going concerns as a result of the COVID-19 pandemic and its impact on 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 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.

During the three months ended September 30, 2021 and 2020, we reduced our reserves for uncollectible amounts and increased rental income by $5,373 for the three months ended September 30, 2021 based on our assessment of collectibility and cash received from certain tenants.

We recorded reserves for uncollectible amounts against rental income of $2,369 for the three months ended September 30, 2020, and $588 and $7,689 for the nine months ended September 30, 2021 and 2020, respectively.

We had reserves for uncollectible rents of $16,434 and $18,230 as of September 30, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.

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

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.

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

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

Our net lease properties generated coverage of 2.37x and 2.12x as of September 30, 2021 and 2020, respectively.

Our Operating Liquidity and Capital Resources

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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.

As of September 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 satisfy that covenant.

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):

Six Months Ended June 30,

Nine Months Ended September 30,

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

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

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.

During the nine months ended September 30, 2021, our hotel managers and tenants deposited $2,861 to these accounts and spent $23,692 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of September 30, 2021, there was $1,657 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 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.

During the nine months ended September 30, 2021, we funded $72,432 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $30,000 for capital improvements to certain hotels during the last three 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 $227 of capital improvements to properties under these lease provisions during the six months ended June 30, 2021.

We funded $786 of capital improvements to properties under these lease provisions during the nine months ended September 30, 2021.

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

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

As of September 30, 2021, we had $4,610 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.

During the nine months ended September 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 five net lease properties with 44,680 square feet for net proceeds of $2,705.

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.

In October 2021, we sold one net lease property with 7,070 rentable square feet for a sales price of $915, excluding closing costs.

We are currently marketing for sale 68 Sonesta branded hotels (46 extended stay hotels with 5,404 rooms or suites, 19 select service hotels with 2,461 rooms or suites and three full service hotels with 895 rooms or suites) located in 27 states with an aggregate net carrying value of $578,982 as of September 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 14,630 square feet and an aggregate carrying value of $1,788 for an aggregate sales price of $2,275, excluding closing costs.

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

We currently expect these sales to be completed by the end of the fourth 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:

During the nine months ended September 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

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

July 15, 2021 July 26, 2021 August 19, 2021 0.01 1,648

$ 0.03 $ 4,944

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.

On October 14, 2021, we declared a regular quarterly distribution to common shareholders of record on October 25, 2021 of $0.01 per share, or $1,651.

We expect to pay this amount on or about November 18, 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 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.

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 as noted below, 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 September 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 September 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 June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.85%.

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

As of September 30, 2021, we were fully drawn under our $1,000,000 revolving credit facility and remain fully drawn as of November 3, 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 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 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 September 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 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;

• in order to exercise the first six month extension option under the credit agreement, we would need to be in compliance with the financial covenants under the agreement calculated using pro forma projections as defined in the agreement for the quarter ending June 30, 2022, annualized, and have repaid or refinanced our $500,000 senior notes due in August 2022;

• 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 June 30, 2021 were as follows:

Our term debt maturities (other than our revolving credit facility) as of September 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 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.

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the duration and severity of the COVID-19 pandemic and its impact on economic conditions 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 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 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 debt obligations at September 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 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.

As of September 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 June 30, 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 September 30, 2021:

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 179.5% Minimum 150%

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.

The above consolidated income available for debt service to debt service ratio as of September 30, 2021 is based on results for the nine months ended September 30, 2021 and the fourth quarter of 2020.

This ratio was 1.06x as of September 30, 2021, which was below the required level and was 1.00x as of June 30, 2021, 1.12x as of March 31, 2021 and 1.56x as of December 31, 2020.

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

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

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.

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

As of June 30, 2021

As of September 30, 2021

As of December 31, 2020

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Other liabilities 398,649 341,907

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Net income (loss)

(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.

(1) Real estate properties, net as of September 30, 2021 includes $303,962 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 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.

As of September 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 146 brands across 22 industries.

Hotel Portfolio

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

Comparable Hotels* )

Comparable Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

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

of Hotels Three months ended September 30, Three months ended September 30, Three months ended September 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Crowne Plaza Full Service 1 495 51.1 % 29.9 % 21.2 pts 123.47 92.88 32.9 % 63.09 27.77 127.2 %

Radisson Blu Full Service 1 84 52.8 % 32.7 % 20.1 pts 86.74 81.93 5.9 % 45.80 26.79 70.9 %

Country Inn and Suites Full Service 3 430 62.4 % 29.1 % 33.3 pts 130.77 90.88 43.9 % 81.60 26.45 208.6 %

Radisson Blu Full Service 1 360 34.9 % 14.1 % 20.8 pts 124.30 92.30 34.7 % 43.38 13.01 233.3 %

Full Service Total/Average 40 12,504 50.8 % 30.1 % 20.7 pts 150.64 116.78 29.0 % 76.53 35.15 117.7 %

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Service Level No.

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

of Hotels Nine months ended September 30, Nine months ended September 30, Nine months ended September 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Crowne Plaza Full Service 1 495 46.6 % 28.9 % 17.7 pts 110.77 120.55 (8.1) % 51.62 34.84 48.2 %

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 84 51.7 % 44.1 % 7.6 pts 88.16 83.54 5.5 % 45.58 36.84 23.7 %

Radisson Blu Full Service 1 360 23.7 % 26.2 % (2.5)pts 110.09 112.06 (1.8) % 26.09 29.36 (11.1) %

Full Service Total/Average 32 10,020 42.4 % 35.2 % 7.2 pts 118.31 123.73 (4.4) % 50.16 43.55 15.2 %

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

For the three months ended June 30, 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.

For the three months ended September 30, 2021 and 2020, our comparable results excluded 12 hotels that had suspended operations during part of the periods presented and for the nine months ended September 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 June 30, Three months ended June 30, Three months ended June 30,

of Hotels Three months ended September 30, Three months ended September 30, Three months ended September 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Service Level No.

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

of Hotels Nine months ended September 30, Nine months ended September 30, Nine months ended September 30,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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All Hotels Total/Average 304 48,439 52.2 % 42.6 % 9.6 Pts $ 102.84 $ 105.14 (2.2) % $ 53.68 $ 44.79 19.8 %

* Results of all hotels owned as of September 31, 2021.

Excludes the results of hotels sold during the periods presented.

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

Net Lease Portfolio

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.

As of September 30, 2021, our net lease properties were 98.2% occupied and we had 30 properties available for lease.

During the nine months ended September 30, 2021, we entered into lease renewals for 607,614 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 14.1 years.

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.

Also during the nine months ended September 30, 2021, we entered into new leases for an aggregate of 159,633 rentable square feet at weighted (by rentable square feet) average rents that were 36.9% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 14.1 years.

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

As of September 30, 2021, our net lease tenants operated across more than 134 brands.

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

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

(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.

(3) As of September 30, 2021, we have six net lease properties with annual minimum rent of $214 classified as held for sale.

(4) See page 29 for our definition of coverage.

(5) Other includes 124 distinct brands with an average investment of $10,204 and average annual minimum rent of $684.

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

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

Tenant Brand Affiliation No.

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(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.

(3) As of September 30, 2021, we have six net lease properties with an annual minimum rent of $214 classified as held for sale.

(4) See page 29 for our definition of coverage.

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(6) Other includes 165 tenants with an average investment of $7,435 and average annual minimum rent of $493.

As of June 30, 2021, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

As of September 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)

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Restaurants-Casual Dining 56 203,339 3.9% 10,390 2.8 % 1.69x

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

Movie Theaters 22 190,725 3.7% 14,495 3.9 % -0.03x

Health and Fitness 13 185,458 3.6% 10,747 2.9 % 1.04x

Grocery Stores 19 129,219 2.5% 9,123 2.5 % 5.23x

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Educational Services 9 55,647 1.1% 4,376 1.2 % 1.53x

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

Building Materials 27 31,317 0.6% 2,608 0.7 % 4.20x

Car Washes 5 28,658 0.6% 2,128 0.6 % 1.76x

Miscellaneous Manufacturing 7 32,873 0.6% 2,445 0.7 % 15.56x

Drug Stores and Pharmacies 7 19,251 0.4% 1,258 0.3 % 1.61x

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

(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.

(2) As of September 30, 2021, we have six net lease properties with an annual minimum rent of $214 classified as held for sale.

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

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(4) See page 29 for our definition of coverage.

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

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

Square Feet Annualized Minimum Rent Expiring (2)

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

(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.

(2) As of September 30, 2021, we have six net lease properties with an annual minimum rent of $214 classified as held for sale.

As of September 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.

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Georgia 597,248 20,178 5.4%

Florida 538,130 16,114 4.3%

Arizona 476,651 16,847 4.5%

Indiana 606,839 16,994 4.6%

Florida 538,130 16,097 4.3%

Pennsylvania 580,091 15,633 4.2%

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

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

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

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

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

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 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,

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

2021 2020 2021 2020

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(94) (109) (10,934) 9,655

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

Unrealized gains on equity securities, net (3)

(24,348) (5,606) (20,367) (4,409)

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Loss on early extinguishment of debt (5)

— 6,970 — 6,970

Gain on insurance settlement, net of tax (6)

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Distributions declared per share $ 0.01 $ 0.01 $ 0.03 $ 0.56

(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.

(1) 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 less costs to sell.

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

(2) We recorded a $94 net gain on sale of real estate during the three months ended September 30, 2021 in connection with the sale of two net lease properties.

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

We recorded a $10,934 net gain on sale of real estate during the nine months ended September 30, 2021 in connection with the sale of six hotels and five net lease properties and recorded a net loss on sale of real estate of $9,655 during the nine months ended September 30, 2020 in connection with the sale of 15 net lease properties.

(3) Unrealized gains 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) 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.

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

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

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 nine months ended September 30, 2020.

(7) Transaction related costs for the three months ended September 30, 2021 of $3,149 are primarily related to legal costs related to our arbitration proceeding with Marriott.

Transaction related costs for the nine months ended September 30, 2021 included $19,971 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the period, $5,263 of legal costs related to our arbitration proceeding with Marriott and $3,700 of working capital we previously funded under our agreement with Hyatt as a result of the amount no longer expected to be recoverable.

(8) Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards, if any.

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