What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-03-01 · 191 added, 218 removed, 770 unchanged (35% of the section changed)

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Our principal place of business is Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 964-8389.

We seek to have a geographically diverse portfolio of real estate primarily in the United States.

Our principal internal growth strategy is to apply asset management strategies to aid our hotel operators in improving performance and operating income of our hotel properties.

We actively manage our net lease portfolio by identifying asset recycling opportunities, monitoring the credit of our tenants and engaging in early lease renewal discussions.

Our asset management teams also work closely with our operators to ensure our hotels and net lease properties are well maintained and that capital investments are well planned and executed efficiently in order to maximize the long term value of our properties.

We actively manage our net lease portfolio by identifying asset recycling opportunities, monitoring the credit of our tenants and engaging in early lease renewal discussions to maintain occupancy and grow rental income.

Our asset management teams also work closely with our operators to ensure our hotels and net lease properties are well maintained and that capital investments are well planned, prudent and executed efficiently in order to maximize the long term value of our properties.

Our external growth strategy is defined by our acquisition, disposition and financing policies as described below.

Our investment, financing and disposition policies and business strategies are established by our Board of Trustees and may be changed by our Board of Trustees at any time without shareholder approval.

On September 20, 2019, we acquired a 767-property net lease portfolio located in 45 states from Spirit MTA REIT, a Maryland REIT (NYSE:

SMTA), or SMTA, for an aggregate transaction value of $2.5 billion, or the SMTA Transaction.

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

Impact of COVID-19

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

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

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

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

and global economies.

To varying degrees, states and municipalities across the United States have generally allowed most businesses to re-open and have generally eased restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities recently have reimposed certain restrictions in response to increases in COVID-19 infections.

Despite some improvements in economic data in the second half of 2020, the U.S.

gross domestic product remains below pre-pandemic levels.

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

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

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

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

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

As a result, our hotels have experienced a significant decline in occupancy, revenues and profitability.

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

As of February 26, 2021, 17 of these 19 hotels have resumed operations.

The remaining two hotels are currently expected to reopen in the second quarter of 2021.

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

Hotel performance gradually improved in the second half of 2020 from the lows experienced in April 2020 as travel demand slowly recovered, but performance remains well below pre-pandemic levels.

Average occupancy at our 310 hotels was 42.0% in 2020 compared to 73.0% in 2019.

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

We have also agreed to suspend contributions of amounts which are escrowed as reserves established for the regular refurbishment of our hotels, or FF&E reserves, under certain of our agreements.

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

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

As a result of the pandemic and the depressed activity at our hotels, we exhausted the security deposits and guarantees we held to cover shortfalls in hotel cash flows available to pay the minimum returns due to us under our InterContinental Hotels Group, plc, or IHG, Marriott International, Inc., or Marriott, and Hyatt Hotels Corporation, or Hyatt, agreements and we expect the remaining guarantee under our Radisson Hospitality Inc., or Radisson, agreement will be exhausted by the second quarter of 2021.

We terminated our agreement with IHG covering 103 hotels for its failure to pay minimum returns and rents due to us upon exhausting the security deposit.

We have terminated our agreement with Marriott covering 105 hotels as of December 31, 2020 for its failure to cover the cumulative shortfall between the payments we had received to date and 80% of the cumulative priority returns due to us.

Hyatt has fully funded the limited guaranty it provided to us under its agreement for 22 hotels and has provided notice of its intent to terminate the agreement in April 2021.

In February 2021, we transitioned the branding and management of 78 Marriott hotels to subsidiaries of Sonesta Holdco Corporation, or Sonesta, and we expect to transition the branding and management of 10 additional Marriott hotels to Sonesta in March 2021 under a management agreement that expires on December 31, 2021, subject to successive one year renewals unless terminated earlier.

We are performing a strategic review of all the hotels in our portfolio and may determine to sell or repurpose some of these hotels in light of changing market conditions.

Our largest net lease tenant, TravelCenters of America Inc., or TA, is current on its rent obligations to us as of February 26, 2021.

The travel centers operated by TA primarily provide goods and services to the trucking industry and demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S.

When the U.S.

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

Although TA has been recognized as providing services to essential businesses by various governmental authorities, and as a result, all of our travel centers operated by TA are open and operating, TA has also experienced negative impacts from the COVID-19 pandemic, including closing most of its full service restaurants (more than half of which have reopened as of December 31, 2020), and implementing social distancing and other measures at its travel center stores.

However, as a result of the recent increase in COVID-19 infections in several states, TA has closed or plans to re-close certain of its restaurants.

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

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

For information regarding our net lease tenants and our assessment of collectability of outstanding rent amounts, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

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

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

• our operations, liquidity and capital needs and resources;

• conducting financial modeling and sensitivity analyses;

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

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

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

For further information regarding our financial resources and expectations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Capital Resources” of this Annual Report on Form 10-K.

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

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

There are extensive uncertainties surrounding the COVID-19 pandemic.

These uncertainties include among others:

• the duration and severity of the negative economic impact;

• the strength and sustainability of any economic recovery;

• the timing and process for COVID-19 vaccine distribution and the levels among which the general public participates in receiving the vaccine;

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

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

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

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

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 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 year ended December 31, 2021 when compared to 2020 levels, we do not know when or if lodging business levels will return to historical pre-pandemic levels.

We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business.

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

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.

These trends, together with increasing labor costs and shortages and commodity and other price inflation due to supply chain challenges resulting from the COVID-19 pandemic or otherwise, may continue to negatively impact our hotel operations and financial results.

For more information and risks relating to the COVID-19 pandemic and its variants on us and our business, see Part I, Item 1A, “Risk Factors”, of this Annual Report on Form 10-K.

Hotel Portfolio

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Number of Properties Number of Rooms or Suites Investment (in 000s) (2)

Royal Sonesta Hotels® Sonesta Full Service Luxury 15 4,947 $ 1,632,669

Royal Sonesta Hotels® Sonesta Full Service Upper Upscale 17 5,663 $ 1,840,427

Sonesta ES Suites® Sonesta Extended Stay Upper Midscale 91 11,379 1,521,328

Sonesta Hotels & Resorts® Sonesta Full Service Upper Upscale 25 8,040 1,218,583

Sonesta ES Suites® Sonesta Extended Stay Upscale 60 7,326 1,016,111

Courtyard by Marriott® Marriott Select Service Upscale 62 9,115 933,621

Simply Suites Sonesta Extended Stay Midscale 61 7,553 606,899

Residence Inn by Marriott® Marriott Extended Stay Upscale 35 4,488 577,640

Sonesta Select® Sonesta Select Service Upscale 63 8,888 900,060

Sonesta Simply Suites® Sonesta Extended Stay Midscale 65 8,040 658,827

Hyatt Place® Hyatt Select Service Upscale 17 2,107 235,726

Courtyard by Marriott® Marriott Select Service Upscale 13 1,813 172,301

Radisson® Hotels & Resorts Radisson Full Service Upscale 5 1,149 159,707

Radisson Blu® Radisson Full Service Upper Upscale 1 360 77,340

Marriott® Hotel Marriott Full Service Upper Upscale 2 748 132,928

Crowne Plaza® IHG Full Service Upscale 1 495 123,283

Sonesta Select Sonesta Select Service Upscale 9 1,150 110,734

Country Inns & Suites® by Radisson Radisson Full Service Upper Midscale 3 430 54,076

TownePlace Suites by Marriott® Marriott Extended Stay Upper Midscale 4 487 50,579

SpringHill Suites by Marriott® Marriott Select Service Upscale 2 263 26,995

Residence Inn by Marriott® Marriott Extended Stay Upscale 3 342 46,074

Total Hotels 303 48,346 $ 6,930,392

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Chain scale segments are grouped primarily according to average room rates.

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

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

Net Lease Portfolio

As of December 31, 2020, we owned 799 service-oriented retail properties with 13,455,405 square feet that are primarily subject to “triple net” leases, or leases where the tenant is generally responsible for the payment of operating expenses and capital expenditures of the property during the lease term.

In general, our lease agreements include renewal terms, require the tenant to make rent payments to us and include future fixed rent increases, rent increases based on the consumer price index, or CPI, or percentage rent based on site level revenues.

As of December 31, 2021, we owned 788 service-oriented retail properties with 13,522,060 square feet.

As of December 31, 2021, our net lease portfolio was occupied by 174 tenants with a weighted (by annual minimum rent) lease term of 10.2 years, operating under 134 brands in 21 distinct industries.

The portfolio is leased to tenants that include travel centers, quick service and casual dining restaurants, movie theaters, health and fitness centers, grocery stores, automotive parts and services and other businesses in service-oriented and necessity-based industries across 42 states.

The following table summarizes the brand affiliation and industries under which our net lease properties operate as of December 31, 2020:

The following table summarizes the brand affiliation and industries under which our net lease properties operate as of December 31, 2021 (dollars in thousands):

Brand Industry No.

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AMC Theatres Movie Theaters 11 575,967 102,580

The Great Escape Miscellaneous Retail 14 542,666 98,242

The Great Escape Home Goods and Leisure 14 542,666 98,242

Life Time Fitness Health and Fitness 3 420,335 92,617

Buehler's Fresh Foods Grocery 5 502,727 76,536

Buehler's Fresh Foods Grocery Stores 5 502,727 76,536

Heartland Dental Medical, Dental Office 59 234,274 61,120

Pizza Hut Restaurants-Quick Service 58 189,609 58,312

Express Oil Change Automotive Parts and Service 23 83,825 49,724

Norms Restaurants-Casual Dining 10 63,490 53,673

Express Oil Change Automotive Equipment & Services 23 83,825 49,724

Regal Cinemas Movie Theaters 6 266,546 44,476

Flying J Travel Plaza Travel Centers 3 48,069 41,681

Pizza Hut Restaurants-Quick Service 39 164,298 43,982

Pilot Travel Center Travel Centers 3 48,069 41,681

Courthouse Athletic Club Health and Fitness 4 193,659 39,688

Fleet Farm Sporting Goods 1 218,248 37,802

Fleet Farm General Merchandise Stores 1 218,248 37,802

Church's Chicken Restaurants-Quick Service 44 58,401 35,370

Big Al's Entertainment 2 111,912 35,214

B&B Theatres Movie Theaters 4 261,300 34,369

America's Auto Auction Automotive Dealers 6 72,338 34,314

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Martin's Restaurants-Quick Service 16 81,909 31,144

Arby's Restaurants-Quick Service 19 57,868 29,166

Creme de la Creme Educational Services 4 81,929 29,131

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Popeye's Chicken & Biscuits Restaurants-Quick Service 20 45,708 28,434

United Supermarkets Grocery 6 236,178 26,121

Golden Corral Restaurants-Casual Dining 6 60,185 25,816

Pike Nursery Miscellaneous Retail 5 56,065 16,192

Mealey's Furniture Home Furnishings 2 95,684 12,952

Various 271 4,072,936 726,722

Total 788 13,522,060 $ 5,131,191

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

Includes six net lease properties with an aggregate carrying value of $2.8 million that we have classified as held for sale.

(2) Consists of 102 distinct brands with an average investment of $2.9 million per building.

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

(2) Consists of 109 distinct brands with an average investment of $2,682 per building.

For more information about our hotel agreements and net lease portfolio, see Notes 5 and 9 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Principal Management Agreement or Lease Features

As of December 31, 2020, our 310 hotels were managed by subsidiaries of Sonesta, Marriott, Hyatt, Radisson and IHG and five additional hotels were short-term leased to a third party with whom we have entered into an agreement to sell the hotels.

As of December 31, 2021, our 303 hotels were managed by subsidiaries of Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, Marriott International, Inc., or Marriott, and InterContinental Hotels Group, plc, or IHG.

Our hotel operating agreements have initial terms expiring between 2022 and 2037.

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The principal features of our hotel agreements are as follows:

• Minimum Returns.

Our hotel management agreements have stated minimum return amounts designed to provide us a return on investment greater than our cost of capital.

The minimum returns are generally subject to available cash flow and we are not assured we will receive them in full or at any level.

• Owner’s Priority Returns.

Our hotel management agreements have stated owner’s priority return amounts designed to provide us a return on investment greater than our cost of capital.

The owner's priority returns are generally subject to available cash flow and we are not assured we will receive them in full or at all.

Owner's priority returns under our Hyatt and Radisson hotel agreements are partially supported by limited guarantees.

• Long Terms.

Our hotel management agreements and leases generally have initial terms of 15 years or more.

The weighted average term remaining for our hotel agreements (weighted by our investments as of December 31, 2021) is 12.0 years, without giving effect to any renewal options our managers and tenants may have.

Our agreements with Sonesta for our recently rebranded hotels are on terms substantially consistent with our legacy management agreements, except that the management agreements for these rebranded hotels expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier.

We entered these shorter term agreements to allow sufficient time to assess the capital needs or determine the highest and best use of the properties.

We and Sonesta amended our management agreements covering 261 hotels effective January 1, 2022.

We extended the term of the agreements for 67 Sonesta branded hotels we expect to sell to the earlier of December 31, 2022 or until the hotels are sold and we extended the term of the agreements for 194 Sonesta branded hotels to January 31, 2037.

• Pooled Agreements .

Most of our hotel properties are included in one of five portfolio agreements.

Each agreement in the portfolio is subject to cross default provisions, such that a tenant’s or manager’s default under one of the agreements would trigger defaults of the other agreements in that portfolio.

Most of our hotel properties are subject to portfolio agreements.

Some agreements in the portfolio are subject to cross default provisions, such that a manager’s default under one of the agreements would trigger defaults of the other agreements in that portfolio.

• All or None Renewals .

Generally, manager renewal options for each portfolio agreement of our hotel properties may only be exercised on an all or none basis and not for separate properties.

Our agreement with Sonesta for hotels that we recently rebranded allows either party to terminate the agreement with respect to individual properties.

See Note 5 to our consolidated financial statements in Part IV, Item 15 for more information on these agreements.

Our agreement with Sonesta for hotels that we expect to sell allows us to terminate the agreement with respect to individual properties as they are sold.

See Notes 4 and 5 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information on our properties held for sale and these agreements.

• Property Maintenance .

Most of our hotel agreements require the deposit of 5% to 6.5% of annual gross hotel revenues into escrows to fund periodic renovations subject to available cash flow.

In 2020, the deposit requirement under our agreements was temporarily suspended due to the COVID-19 pandemic.

We own the cash in these escrow accounts.

If no escrowed cash is available, we are required to fund capital expenditures.

Generally, as we fund capital expenditures, the contractual minimum returns increase.

Generally, as we fund capital expenditures, our owner’s priority return amount increases.

• Working capital.

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• Management Fees .

Base fees are generally between 3% to 5% of gross revenues, as defined in the agreements.

Certain base and all incentive management fees under our hotel management agreements are subordinate to payment of annual minimum returns due to us.

Our hotel managers have the ability to earn incentive management fees generally based on excess cash flows after payment of hotel operating expenses, payment of base management fees, funding of the required FF&E reserve, if any, payment of our minimum returns, reimbursement of certain advances and in certain instances, replenishment of the security deposit or guarantee.

Historically, our hotel management agreements included various terms intended to secure payments to us.

Due to the adverse impact of the COVID-19 pandemic, the security features under our IHG, Marriott and Hyatt agreements were exhausted and we expect the remaining guarantee under our Radisson agreement will be exhausted by the end of the second quarter of 2021.

In addition, we have no guarantee or security deposit under our agreements with Sonesta to which we transitioned most of these hotels and we do not expect to obtain any guarantee or security deposit from Sonesta in the future.

In general, our 799 net lease properties are subject to leases pursuant to which the tenants pay fixed annual rents on a monthly, quarterly or semi-annual basis, and also pay or reimburse us for all, or substantially all, property level operating and maintenance expenses, such as real estate taxes, insurance, utilities and repairs, including increases with respect thereto.

Base fees are generally between 3% to 5% of gross revenues, as defined in our hotel management agreements and are paid as operating expenses senior to our owner’s priority returns.

Incentive management fees under our hotel management agreements are subordinate to payment of annual owner's priority returns due to us.

Our hotel managers have the ability to earn incentive management fees generally based on excess cash flows after payment of hotel operating expenses, payment of base management fees, funding of the required FF&E reserve, if any, payment of our owner's priority returns, reimbursement of certain advances and in certain instances, replenishment of the security deposit or guarantee.

Generally, the incentive fee would be 20% of such excess cash flow and the remaining 80% would be retained by us.

• Termination Rights.

In addition to any right to terminate that may arise as a result of a default by the manager, most of our management agreements include reserved rights for us to terminate on the basis of the manager’s failure to meet certain performance-based metrics, including the level of owner’s priority return generated over a period of time.

Typically, such performance-based termination rights arise in the event the operator fails to achieve these specified performance thresholds over a consecutive two or three-year period and are subject to the manager’s ability to “cure” and avoid termination by payment to us of specified deficiency amounts, or are subject to force majeure provisions.

A termination fee may be payable to the hotel operator under certain circumstances if a management agreement with respect to a hotel is terminated.

We have agreed in the past, and may agree in the future, to waive certain of these termination rights in exchange for consideration from a manager or its affiliates, which consideration may include amendments to the management agreements.

In general, our 788 net lease properties are subject to “triple net” leases where the tenant is generally responsible for the payment of operating expenses and capital expenditures of the property during the lease term.

Our tenants are responsible to pay us fixed annual rents on a monthly, quarterly or semi-annual basis.

Our net lease tenants are responsible to maintain the properties including structural and non-structural components.

Certain of our net lease properties also have future rent increases included in the leases either at a fixed amount or based on changes in CPI.

Certain of our net lease properties also have future rent increases included in the leases either at a fixed amount or based on changes in the consumer price index, or CPI.

Certain of our lease agreements also require payment of percentage rent to us based on increases in certain gross property revenues over threshold amounts.

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Our typical travel center includes over 25 acres of land with parking for approximately 200 tractor trailers and approximately 100 cars.

a full service restaurant and one or more quick service restaurants which are operated under nationally recognized brands;

a truck repair facility and parts store;

multiple diesel and gasoline fueling points, including diesel exhaust fluid at the diesel lanes;

a travel store;

a lounge and other amenities for professional truck drivers and motorists.

Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, diesel exhaust fluid, one full service restaurant, one or more quick service restaurants, travel stores and various customer amenities.

Investment and Operating Policies

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use moderate debt leverage to fund additional investments which increase cash flows from operations because of positive spreads between our cost of investment capital and investment yields;

structure investments which generate a minimum return and provide an opportunity to participate in operating growth at our properties;

structure investments which generate a return in excess of our capital costs and provide an opportunity to participate in operating growth at our properties;

when market conditions permit, refinance debt with additional equity or long term debt;

and pursue diversification so that our cash flows from operations come from diverse properties and operators.

Generally, we provide capital to owners and operators in service related industries who wish to expand their businesses or divest their properties while remaining in the service business.

Generally, we provide capital to owners and operators who wish to expand their businesses or divest their properties while continuing to operate their business.

Our first investment in travel centers was structured differently than all our other investments.

We acquired an operating travel centers business, reorganized the business to retain substantially all of the real estate and then distributed a tenant operating company to our shareholders.

We may in the future make investments in this fashion or in a manner different from our other investments.

One of our goals in completing the SMTA Transaction was to acquire single tenant, net lease service-oriented based properties to further diversify our sources of rents and returns with the intention of improving the security of our cash flows.

We may in the future make investments in this fashion or in a manner different from our other investments to further diversify our sources of rents and returns with the intention of improving the security of our cash flows.

Because we are a REIT, we generally may not operate our properties.

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Internal Revenue Code of 1986, as amended, or the IRC, we may lease our hotels to one of our “taxable REIT subsidiaries,” as defined in Section 856(l) of the IRC, or TRSs, if the hotel is managed by a third party.

As of December 31, 2020, 305 of our hotels were leased to our TRSs and managed by third parties.

As of December 31, 2021, all of our hotels were leased to our TRSs and managed by third parties.

Any income realized by a TRS in excess of the rent paid to us by the subsidiary is subject to income tax at customary corporate rates.

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Our principal goal of any such transactions will be to increase our cash flows from operations and to further diversify our revenue sources.

We own 8.1% of the outstanding common shares of TA and 34% of the outstanding common stock of Sonesta as of December 31, 2020.

We may in the future acquire additional common shares of TA and Sonesta or securities of other entities, including entities engaged in real estate activities or we may sell these common shares.

We own 8.0% of the outstanding common stock of TA and 34% of the outstanding common stock of Sonesta as of December 31, 2021.

We may in the future acquire additional shares of common stock of TA and Sonesta or securities of other entities, including entities engaged in real estate activities or we may sell these shares of common stock.

We may invest in the securities of other entities for the purpose of exercising control or otherwise, make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase our securities.

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We generally consider ourselves to be a long term owner of properties and are more interested in the long term earnings potential of our properties than selling properties for short term gains.

However, we seek to strategically sell assets from time to time as part of managing our leverage, capital recycling, highest and best use analysis, or as part of long term financing of other acquisitions.

During 2020, we sold 18 hotels with 2,046 rooms for an aggregate sales price of $85.8 million.

We also sold 21 net lease properties with 1,375,483 square feet for an aggregate sales price of $88.4 million.

Since September 2020, we have rebranded 193 hotels to Sonesta and expect to rebrand 10 more in the first quarter of 2021 on terms substantially consistent with our legacy management agreements, except that the management agreements for these rebranded hotels expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier.

We are evaluating these hotels to determine if we should sell or repurpose any of the hotels.

As of December 31, 2020, we had five hotels and six net lease properties with an aggregate carrying value of $13.5 million classified as held for sale.

For more information on these disposition activities, please refer to Note 4 in our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

However, we may seek to strategically sell assets from time to time as part of managing our leverage, capital recycling, highest and best use analysis, or as part of long term financing of acquisitions.

During 2021, we sold seven hotels with 669 rooms for an aggregate sales price of $40.6 million and 11 net lease properties with 97,276 square feet for an aggregate sales price of $11.8 million.

As of December 31, 2021, we had 67 hotels and 22 net lease properties with an aggregate carrying value of $514.3 million classified as held for sale.

For more information on these disposition activities, please refer to Note 4 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We currently make decisions to dispose of properties based on factors including, but not limited to, the following:

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The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and expansions of existing or new properties, but our credit agreement currently requires such proceeds to be used to repay debt.

For further information regarding our financing sources and activities, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Capital Resources” and Note 6 of our consolidated financial statements in this Annual Report on Form 10-K.

Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our $1.0 billion revolving credit facility and our unsecured senior notes indentures and their supplements contain financial covenants which, among other things, restrict our ability to incur indebtedness and require us to maintain certain financial ratios.

We and our lenders amended our credit agreement governing our $1.0 billion revolving credit facility and $400.0 million term loan on May 8, 2020 and we and our lenders further amended our credit agreement governing our $1.0 billion revolving credit facility on November 5, 2020.

As a result of the November 5, 2020 amendment, we secured a waiver of all then existing financial covenants under our credit agreement through July 15, 2022.

Also, on November 5, 2020, we repaid our $400.0 million term loan due in July 2023.

We pledged certain equity interests of subsidiaries owning properties and we are providing first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1.8 billion as of December 31, 2020 to secure our obligations under the credit agreement.

However, we may seek additional amendments to these covenants or seek replacement financings with less restrictive covenants.

For further information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Capital Resources” included in Part II, Item 7 of this Annual Report on Form 10-K and Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our $1.0 billion revolving credit facility and our unsecured senior notes indentures and their supplements contain financial covenants which, among other things, restrict our ability to incur additional indebtedness and require us to maintain certain financial ratios.

We and our lenders amended our credit agreement governing our $1.0 billion revolving credit facility in 2020.

As a result of the 2020 amendments, we secured a waiver of all then existing financial covenants under our credit agreement through July 15, 2022.

We pledged certain equity interests of subsidiaries owning properties and we provided first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1.8 billion as of December 31, 2021 to secure our obligations under the credit agreement.

However, we are in discussions with our lenders regarding an extension of the maturity date of our revolving credit facility and additional covenant waivers.

There is no assurance we will come to terms with our lenders or will be granted such additional covenant relief.

In the future, we may decide to seek changes in the financial covenants which currently restrict our debt leverage based upon then current economic conditions, the relative availability and costs of debt versus equity capital and our need for capital to take advantage of acquisition opportunities or otherwise.

We are required to maintain the ratio of income available for debt service to debt service above 1.5x under our credit agreement and public debt covenants.

This ratio was 1.56x and 2.86x as of December 31, 2020 and 2019, respectively.

We expect this ratio to continue to decline in 2021 as more quarters of historically weak operations resulting from the COVID-19 pandemic are reflected in the calculation.

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

In January 2021, we drew down $972.8 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of continued uncertainty in the global markets resulting from the COVID-19 pandemic.

As of February 26, 2021, we are fully drawn under our revolving credit facility.

This ratio was 1.20x as of December 31, 2021.

We are currently unable to incur additional debt while the ratio is below required covenant levels.

In January 2021, we drew $972.8 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of continued uncertainty in the global markets resulting from the COVID-19 pandemic.

As of February 22, 2022, we remain fully drawn under our revolving credit facility.

Generally, we intend to manage our leverage in a way that may allow us to eventually regain “investment grade” ratings from nationally recognized statistical rating organizations;

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The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary RMR LLC.

Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc.

Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of

RMR Inc., a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

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Our Chief Financial Officer and Treasurer, Brian E.

Donley, and our Chief Investment Officer and Vice President, Todd Hargreaves, are Vice Presidents of RMR LLC.

Murray and other officers of RMR LLC also serve as officers of other companies to which RMR LLC or its subsidiaries provide management services.

Donley, and our Chief Investment Officer and Vice President, Todd Hargreaves, are Vice President and Senior Vice President of RMR LLC, respectively.

Murray also serves as an officer of another company to which RMR LLC or its subsidiaries provide management services.

Murray and Ms.

Clark also serve on the board of directors of Sonesta, and Mr.

Portnoy is the chair of the board and managing director of TA.

Clark also serves as an officer of TA.

We have no employees.

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Under these agreements, neither the operators nor their affiliates are usually restricted from operating other brands of hotels in the market areas of any of our hotels, and after such period of time, the operators and their affiliates may also compete with our hotels by opening, managing or franchising additional hotels under the same brand name in direct competition with our hotels.

We also face competition from alternative lodging options such as cruise ships, timeshares, vacation rentals, or home sharing services in our markets.

As of December 31, 2021, 261 of our hotels are operated by Sonesta.

Sonesta faces competition from larger, well known hotel companies.

Competitive pressures from these companies and others could negatively impact Sonesta’s ability to pay our owner's priority returns.

Our hotels also face competition from alternative lodging options such as home sharing services, timeshares, vacation rentals or cruise ships in our markets.

The market for net lease properties is also highly competitive.

As an owner and landlord of retail net lease properties, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours and are in the same markets in which our properties are located.

As an owner and landlord of net lease retail properties, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours and are in the same markets in which our properties are located.

In operating and managing our portfolio, we compete for tenants based on a number of factors, including location, rental rates and flexibility.

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Sustainability, Environmental and Climate Change Matters.

In July 2020, our manager, RMR LLC, released its first annual Sustainability Report, which summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including SVC, employ.

Our manager, RMR LLC, periodically publishes its Sustainability Report, which summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including us, employ.

RMR LLC’s Sustainability Report may be accessed on the RMR Inc.

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The information on or accessible through RMR Inc.’s website is not incorporated by reference into this Annual Report on Form 10-K.

Ownership of real estate is subject to risks associated with environmental hazards.

Under various laws, owners as well as tenants and managers of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or manage and may be held liable for property damage or personal injuries that result from hazardous substances.

These laws also expose us to the possibility that we may become liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances.

In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the operators of our properties to incur costs to comply with.

Our travel centers include fueling areas, truck repair and maintenance facilities and tanks for the storage of petroleum products and other hazardous substances and many of our net lease retail locations contain industrial machinery, including those related to automotive sales and service, all of which create a potential for environmental contamination.

We review environmental surveys of the properties we acquire prior to their purchase.

Based upon those surveys, other studies we may have reviewed and our understanding of the operations of these properties by our managers and tenants, we do not believe that there are environmental conditions at any of our properties that have had or will have a material adverse effect on us.

Generally, under the terms of our management agreements and leases, our tenants and managers have agreed to indemnify us from all environmental liabilities we incur arising during the term of the agreements.

We cannot be sure that conditions are not present at our properties or that costs we may be required to incur in the future to remediate contamination will not have a material adverse effect on our business, financial condition or results of operations.

Moreover, our tenants and managers may not have sufficient resources to pay environmental liabilities.

Our business strategy incorporates a focus on sustainable approaches to operating our properties in a manner that benefits us, our shareholders, operators and the communities in which we are located.

As a REIT, we are prohibited by tax law from operating our hotel properties and all of our other properties are leased to or managed by third parties.

However, our asset managers encourage our managers and tenants to operate our properties in ways that improve the economic performance of their operations, while simultaneously managing energy and water consumption, as well as greenhouse gas emissions.

Our environmental sustainability and community engagement strategies are primarily implemented by our operators and focus on a complementary set of objectives, including the following:

• Responsible Investment:

We seek to invest capital in our properties that both improves environmental performance and enhances asset value.

During the acquisition of properties, RMR LLC assesses, among other things, environmental sustainability opportunities and climate related risks as part of the due diligence process.

• Environmental Stewardship:

We seek to improve the environmental footprint of our properties, including by reducing energy consumption and water usage, especially when doing so may reduce operating costs and enhance the properties' competitive position.

Although our properties are operated by third parties or are net leased and, therefore, the third-party managers and tenants oversee most of the property maintenance and improvements over the lease term, RMR LLC's asset management group proactively leverages opportunities to make our properties more environmentally friendly and efficient.

Working with our operators, we have:

• initiated programs to reduce energy and water use;

• encouraged the use of alternative energy sources such as solar, battery and other energy sources;

• implemented various initiatives to encourage recycling of plastics, paper and metal or glass containers;

• when renovating hotels, used energy efficient products, including lighting, windows, plumbing and heating, ventilation and air conditioning equipment, and many appliances in extended stay hotels are ENERGY STAR® rated;

• installed electric car charging stations at some of our hotels and travel centers.

• Climate Change Matters :

We define climate change resilience as our ability to anticipate, prepare for and recover from adverse physical climate activity including increased severity of acute weather events and chronic changes to weather patterns as well as identify and plan for climate-related transitional activities such as changes in policy and market driven expectations.

We routinely evaluate properties susceptible to flooding and other natural disasters.

The evaluation may include implementing tenant and local agency coordination protocols, property incident response plan reviews, insurance provider assessments and the implementation of physical protection elements, such as flood protection barriers and the installation of hurricane and blizzard resistant windows and doors.

When major weather or climate-related events, such as hurricanes, floods or wildfires, occur near our properties, our manager or tenant may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

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We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants or managers directly or in the longer term, passed through and paid by customers of our properties.

Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.

For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities,” “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to risks from adverse weather and climate events” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” of this Annual Report on Form 10-K.

We are environmentally conscious and aware of the impact our properties have on the environment.

We and our hotel managers have implemented numerous initiatives to encourage energy efficiencies, recycling of plastics, paper and metal or glass containers;

our hotel managers have programs to encourage reduced water and energy use at a guest’s option by not laundering towels and linens every day.

When we renovate our hotels we generally use energy efficient products including but not limited to lighting, windows and HVAC equipment and many of the appliances in our extended stay hotels are Energy Star rated.

We or our tenants or hotel managers have also installed car battery charging stations at some of our properties to accommodate environmentally aware customers.

Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to

make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.

For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities,” “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to risks from adverse weather and climate events” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” included in Part II, Item 7 of this Annual Report on Form 10-K.

Investments in Human Capital.

We have no employees.

We rely on our managers, including RMR LLC, to hire, train, and develop a workforce that meets the needs of our business, contributes positively to our society and helps reduce our impact on the natural environment.

Corporate Citizenship.

We seek to be a responsible corporate citizen and to strengthen the communities in which we own properties.

Our manager, RMR LLC, regularly encourages its employees to engage in a variety of charitable and community programs, including participation in a company-wide service day and charitable giving matching program.

Diversity & Inclusion.

We value a diversity of backgrounds, experience and perspectives.

Our Board is comprised of 29% women and 14% members of underrepresented communities.

RMR LLC is an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status.

RMR LLC is committed to racial equality and fostering a culture of diversity and inclusion.

RMR LLC has made diversity and inclusion an important part of its hiring, retention and development programs.

RMR LLC’s hiring policies support increasing diversity within its workforce.

For every open position not filled by internal candidates, hiring managers are required to have at least one qualified woman or member of an underrepresented community candidate in the final round interviews before an offer is extended to fill the position.

An RMR LLC manager who is a woman and/or member of an underrepresented community is required to be part of the final round interview team.

In addition, RMR LLC works with strategic industry partners like Commercial Real Estate Women (CREW) and The Partnership Inc.

for posting new positions and supporting multicultural professionals.

We generally have insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire, flood, earthquake, extended coverage and rental or business interruption losses.

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As of December 31, 2021, we had two operating segments, hotel investments and net lease investments.

For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on Form 10-K and our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Material United States Federal Income Tax Considerations

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Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of our available current or accumulated earnings and profits.

Our dividends are not generally entitled to the preferential tax rates on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends or as qualified dividend

income, all as explained below.

Our dividends are not generally entitled to the preferential tax rates on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends or as qualified dividend income, all as explained below.

In addition, for taxable years beginning before 2026 and pursuant to the deduction-without-outlay mechanism of Section 199A of the IRC, our noncorporate U.S.

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While we believe that we have satisfied and will satisfy these tests, our counsel does not review compliance with these tests on a continuing basis.

If we fail to qualify for taxation as a REIT in any year, we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of regular C corporations, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of regular C corporations, meaning that federal income tax

generally will be applied at both the corporate and shareholder levels.

In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders could be reduced or eliminated.

If we continue to qualify for taxation as a REIT and meet the tests described below, we generally will not pay federal income tax on amounts we distribute to our shareholders.

If we continue to qualify for taxation as a REIT and meet the tests described below, then we generally will not pay federal income tax on amounts that we distribute to our shareholders.

However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below:

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If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income tax in the same manner as a regular C corporation.

Further, as a regular C corporation, distributions to our shareholders will not be deductible by us, nor will distributions be required under the IRC.

Further, as a regular C corporation, distributions to our shareholders will not be deductible by us, nor

will distributions be required under the IRC.

Also, to the extent of our current and accumulated earnings and profits, all distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the preferential tax rates discussed below under the heading “—Taxation of Taxable U.S.

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The assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as the REIT’s.

We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities owned in whole or in part by the TRSs), will be either a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.

We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities whose equity is owned in whole or in part by such TRSs), will be either a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.

Thus, in applying all of the REIT qualification requirements described in this summary, all assets, liabilities and items of income, deduction and credit of our QRSs are treated as ours, and our investment in the stock and other securities of such QRSs will be disregarded.

We have invested and may in the future invest in real estate through one or more entities that are treated as partnerships for federal income tax purposes.

that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).

In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests, of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).

In addition, for these purposes, the character of the assets and items of gross income of the partnership generally remains the same in the hands of the REIT.

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However, failure of the subsidiary to separately satisfy the various REIT qualification requirements described in this summary or that are otherwise applicable (and failure to qualify for the applicable relief provisions) would generally result in (a) the subsidiary being subject to regular U.S.

corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test, (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to a REIT’s ownership in corporations other than REITs and TRSs, and (iii) thereby jeopardizing the REIT parent’s own REIT qualification and taxation on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We may make protective TRS elections with respect to any subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections and other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test and (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to a REIT’s ownership in corporations other than REITs and TRSs.

In such a situation, the REIT parent’s own REIT qualification and taxation could be jeopardized on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We may make protective TRS elections with respect to any subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

Taxable REIT Subsidiaries.

As a REIT, we are permitted to own any or all of the securities of a TRS, provided that no more than 20% of the total value of our assets, at the close of each quarter, is comprised of our investments in the stock or other securities of our TRSs.

Very generally, a TRS is a subsidiary corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with its affiliated REIT to be treated as a TRS.

A TRS is taxed as a regular C corporation, separate and apart from its affiliated REIT.

Very generally, a TRS is a subsidiary corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a TRS.

A TRS is taxed as a regular C corporation, separate and apart from any affiliated REIT.

Our ownership of stock and other securities in our TRSs is exempt from the 5% asset test, the 10% vote test and the 10% value test discussed below.

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(2) not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a lodging facility or a health care facility.

In addition, any corporation (other than a REIT) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS.

Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which we intend for the subsidiary’s TRS election to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.

In addition, any corporation (other than a REIT and other than a QRS) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS (excluding, for this purpose, certain “straight debt” securities).

Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary’s TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.

As discussed below, TRSs can perform services for our tenants without disqualifying the rents we receive from those tenants under the 75% gross income test or the 95% gross income test discussed below.

Moreover, because our TRSs are taxed as C corporations that are separate from us, their assets, liabilities and items of income, deduction and credit generally are not imputed to us for purposes of the REIT qualification requirements described in this summary.

Moreover, because our TRSs are taxed

as C corporations that are separate from us, their assets, liabilities and items of income, deduction and credit generally are not imputed to us for purposes of the REIT qualification requirements described in this summary.

Therefore, our TRSs may generally conduct activities that would be treated as prohibited transactions or would give rise to nonqualified income if conducted by us directly.

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Further, if in comparison to an arm’s length transaction, a third-party tenant has overpaid rent to the REIT in exchange for underpaying the TRS for services rendered, and if the REIT has not adequately compensated the TRS for services provided to or on behalf of the third-party tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS.

A safe harbor

exception to this excise tax applies if the TRS has been compensated at a rate at least equal to 150% of its direct cost in furnishing or rendering the service.

A safe harbor exception to this excise tax applies if the TRS has been compensated at a rate at least equal to 150% of its direct cost in furnishing or rendering the service.

Finally, the 100% excise tax also applies to the underpricing of services provided by a TRS to its affiliated REIT in contexts where the services are unrelated to services for REIT tenants.

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There is an exception to this rule permitting a REIT to perform customary management and tenant services of the sort that a tax-exempt organization could perform without being considered in receipt of “unrelated business taxable income” as defined in Section 512(b)(3) of the IRC, or UBTI.

In addition, a de minimis amount of noncustomary

services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property.

In addition, a de minimis amount of noncustomary services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property.

• If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property;” if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.

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We attempt to structure our activities to avoid transactions that are prohibited transactions, or otherwise conduct such activities through TRSs;

but, we cannot be sure whether or not the IRS might successfully assert that one or more of our dispositions is subject to the 100% penalty tax.

but, we cannot be sure whether or not the IRS might successfully assert that we are subject to the 100% penalty tax with respect to any particular transaction.

Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.

We believe that any gain from dispositions of assets that we have made, or that we might make in the future, including through any partnerships, will generally qualify as income that satisfies the 75% and 95% gross income tests, and will not be dealer gains or subject to the 100% penalty tax.

We believe that any gain that we have recognized, or will recognize, in connection with our disposition of assets and other transactions, including through any partnerships, will generally qualify as income that satisfies the 75% and 95% gross income tests, and will not be dealer gains or subject to the 100% penalty tax.

This is because our general intent has been and is to:

(a) own our assets for investment with a view to long-term income production and capital appreciation;

(a) own our assets for investment (including through joint ventures) with a view to long-term income production and capital appreciation;

(b) engage in the business of developing, owning, leasing and managing our existing properties and acquiring, developing, owning, leasing and managing new properties;

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• Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets.

In addition, we may not own more than 10% of the vote or value of any one non-REIT issuer’s outstanding securities, unless the securities are “straight debt” securities or otherwise excepted as discussed below.

In addition, we may not own more than 10% of the vote or value of any one non-REIT issuer’s outstanding securities, unless the securities are “straight debt” securities or

otherwise excepted as discussed below.

Our stock and other securities in a TRS are exempted from these 5% and 10% asset tests.

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We currently own hotels that we purchased to be leased to our TRSs or which are being leased to our TRSs as a result of modifications to, or expirations of, a prior lease, all as agreed to by applicable parties.

For example, in connection with past lease defaults and expirations, we have terminated occupancy of some

of our hotels by the defaulting or expiring tenants and immediately leased these hotels to our TRSs and entered into new third-party management agreements for these hotels.

For example, in connection with past lease defaults and expirations, we have terminated occupancy of some of our hotels by the defaulting or expiring tenants and immediately leased these hotels to our TRSs and entered into new third-party management agreements for these hotels.

We may from time to time lease additional hotels to our TRSs.

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The IRC generally limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income,” subject to specified exceptions.

Any deduction in excess of the limitation is

carried forward and may be used in a subsequent year, subject to that year’s 30% limitation.

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, changed the limitation on adjusted taxable income, increasing it from 30% to 50%, but only for 2019 and 2020.

Moreover, taxpayers can elect to use their adjusted taxable income from their 2019 tax year for their adjusted taxable income in their 2020 tax year for purposes of calculating the limitation.

Provided a taxpayer makes an election (which is irrevocable), the applicable limitation on the deductibility of net interest expense does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

Treasury regulations provide that a real property trade or business includes a trade or business conducted by a REIT, and we intend to make an election to be treated as a real property trade or business effective for our 2020 taxable year.

Accordingly, we do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our “real estate investment trust taxable income” beginning in 2020.

Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to that year’s 30% limitation.

Provided a taxpayer makes an

election (which is irrevocable), the limitation on the deductibility of net interest expense does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

Treasury regulations provide that a real property trade or business includes a trade or business conducted by a REIT.

We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our “real estate investment trust taxable income.”

Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration.

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For instance, we may be subject to federal income taxation on all or part of the built-in gain that was present on the last date an asset was owned by a C corporation, if we succeed to a carryover tax basis in that asset directly or indirectly from such C corporation and if we sell the asset during the five year period beginning on the day the asset ceased being owned by such C corporation.

To the extent of our income and gains in a taxable year that are subject to the built-in gains tax, net of any taxes paid on such income and gains with respect to that taxable year, our taxable dividends paid in the following year will be potentially eligible for taxation to noncorporate U.S.

noncorporate U.S.

shareholders at the preferential tax rates for “qualified dividends” as described below under the heading “—Taxation of Taxable U.S.

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Like-Kind Exchanges

During the first quarter of 2019, we sold 20 travel centers to TA for an aggregate price of $308.2 million pursuant to three separate agreements.

Our and TA’s obligations to complete the three transactions were subject to various conditions typical of commercial real estate purchases, and thus on advice of counsel we believe that each of the three agreements was a separate transaction for federal income tax purposes.

Our sales of the travel centers would have resulted in significant tax gains and either a significant 2019 distribution requirement or entity-level taxation to the extent the gains were not deferred.

In order to defer some of the gains on these sales, we recycled proceeds from two of the three transactions into replacement property pursuant to Section 1031 of the IRC.

Any gains that were not deferred under Section 1031 of the IRC constituted qualifying income for purposes of the 75% and 95% gross income tests.

We have in the past disposed of properties in transactions intended to qualify as like-kind exchanges under the IRC, and may continue this practice in the future.

Such like-kind exchanges are intended to result in the deferral of gain for U.S.

federal income tax purposes.

The failure of any such transaction to qualify as a like-kind exchange could subject us to U.S.

federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.

Distributions to our Shareholders

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Section 302 of the IRC treats a redemption of our shares for cash only as a distribution under Section 301 of the IRC, and hence taxable as a dividend to the extent of our available current or accumulated earnings and profits, unless the redemption satisfies one of the tests set forth in Section 302(b) of the IRC enabling the redemption to be treated as a sale or exchange of the shares.

shareholder’s entire share interest in us, or (c) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the IRC.

The redemption for cash only will be treated as a sale or exchange if it (a) is “substantially disproportionate” with respect to the surrendering shareholder’s ownership in us, (b) results in a “complete termination” of the surrendering shareholder’s entire share interest in us, or (c) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the IRC.

In determining whether any of these tests have been met, a shareholder must generally take into account shares considered to be owned by such shareholder by reason of constructive ownership rules set forth in the IRC, as well as shares actually owned by such shareholder.

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shareholders whose total adjusted income exceeds the applicable thresholds, the maximum federal income tax rate for long-term capital gains and most corporate dividends is generally 20%.

However, because we are not generally subject to federal income tax on the portion of our “real estate investment trust taxable income” distributed to our shareholders, dividends on our shares generally are not eligible for these preferential tax rates, except that any distribution of C corporation earnings and profits and taxed built-in gain items will potentially be eligible for these preferential tax rates.

However, because we are not generally

subject to federal income tax on the portion of our “real estate investment trust taxable income” distributed to our shareholders, dividends on our shares generally are not eligible for these preferential tax rates, except that any distribution of C corporation earnings and profits and taxed built-in gain items will potentially be eligible for these preferential tax rates.

As a result, our ordinary dividends generally are taxed at the higher federal income tax rates applicable to ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is generally available to our noncorporate U.S.

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If you are a tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

Our distributions made to shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities should not constitute UBTI, provided that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.

We expect that shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities, and that receive (a) distributions from us, or (b) proceeds from the sale of our shares, should not have such amounts treated as UBTI, provided in each case (x) that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, (y) that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and (z) that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.

Taxation of Non-U.S.

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trade or business and a non-U.S.

shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S.

shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing

requirements that apply to income effectively connected with a U.S.

trade or business.

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shareholders at all times during the preceding five years, after applying specified presumptions regarding the ownership of our shares as described in Section 897(h)(4)(E) of the IRC.

For these purposes, we believe that the statutory ownership presumptions apply to validate our status as a “domestically controlled” REIT.

For these purposes, we believe that the statutory ownership

presumptions apply to validate our status as a “domestically controlled” REIT.

Accordingly, we believe that we are and will remain a “domestically controlled” REIT.

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In particular, a payee that is a foreign financial institution that is subject to the diligence and reporting requirements described above must enter into an agreement with the U.S.

Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders.

guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules.

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Sales and other transactions between an ERISA Plan or a Non-ERISA Plan and disqualified persons or parties in interest, as applicable, are prohibited transactions and result in adverse consequences absent an exemption.

The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan or Non-ERISA Plan may cause a wide range of persons to be treated as disqualified persons or parties in interest with respect to it.

The particular facts concerning the

sponsorship, operations and other investments of an ERISA Plan or Non-ERISA Plan may cause a wide range of persons to be treated as disqualified persons or parties in interest with respect to it.

A non-exempt prohibited transaction, in addition to imposing potential personal liability upon ERISA Plan fiduciaries, may also result in the imposition of an excise tax under the IRC or a penalty under ERISA upon the disqualified person or party in interest.

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“Plan Assets” Considerations

Department of Labor has issued a regulation defining “plan assets.” The regulation, as subsequently modified by ERISA, generally provides that when an ERISA Plan or a Non-ERISA Plan otherwise subject to Title I of ERISA and/or Section 4975 of the IRC acquires an interest in an entity that is neither a “publicly offered security” nor a security issued by an investment company registered under the Investment Company Act of 1940, as amended, the assets of the ERISA Plan or Non-ERISA Plan include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is

established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant.

We are not an investment company registered under the Investment Company Act of 1940, as amended.

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• any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.

We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that there exist no other facts or circumstances limiting the transferability of our shares that are not included among those enumerated as not affecting their free transferability under the regulation, and we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions.

Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and bylaws and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.

In addition, we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions.

bylaws and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.

This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.”

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-K

Item 1. Business