What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-03-01 · 273 added, 327 removed, 448 unchanged (57% of the section changed)

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Business Environment and Outlook.

The COVID-19 pandemic has severely impacted the industries in which our operators conduct 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.

Although there were positive economic trends seen during the second and third quarters of 2020, due to recent surges in COVID-19 cases, a slow rollout of vaccinations and the uncertainty surrounding the public’s acceptance of such vaccinations, we currently expect the eventual recovery in the lodging and other industries our tenants operate will not likely occur until the second half of 2021, and will most likely be gradual and the impact on specific markets and industries will be uneven.

We believe the lodging industry outlook will continue to be weighed down by the slow return of corporate and group travel, as businesses likely will remain cautious.

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

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

As of February 26, 2021, we have:

• received waivers of compliance with the then-existing financial covenants under our credit agreement to ensure we had access to undrawn amounts under our revolving credit facility, subject to minimum liquidity requirements;

• reduced our quarterly cash distributions on our common shares to $0.01 per share, a savings of approximately $87,220 per quarter compared to prior distribution levels;

• raised $1,229,950 of net proceeds from the issuance of new senior notes;

• repaid our $400,000 term loan;

• repaid our $400,000 of 4.25% senior notes due 2021;

• raised $167,542 in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $24,313, excluding closing costs;

• borrowed the remaining $972,793 of capacity under our revolving credit facility in January 2021 as a precautionary measure to preserve financial flexibility;

• been in regular, frequent contact with our hotel managers to implement cost savings measures to minimize losses and preserve liquidity, including agreeing to temporary closures of certain hotels, the reduction of hotel operating staff and certain other measures;

• communicated with many of our net lease retail tenants regarding their operation of our properties in the current challenging economic conditions, and provided rent deferrals to certain tenants that are generally payable in installments beginning in the third quarter of 2020 and, in some cases, we have restructured our tenants’ leases.

We have no debt maturities during the remainder of 2021 and our next debt maturity is in August 2022.

For further discussion of and the risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.”

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 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 currently expect that the recovery with respect to business 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.

In addition, consumer confidence and lodging demand will continue to be affected by unemployment levels, 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, 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 IV, Item 1, “Business—Impact of COVID-19” and Part I, Item 1A, “Risk Factors”, of this Annual Report on Form 10-K.

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

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

To mitigate the effects of the pandemic and the increased variability in operating cash flows from our hotels, we continue to work with our hotel managers to contain costs where possible.

We are prioritizing, deferring, or strategically planning capital improvements to mitigate potential disruptions to hotel results.

We also continue to pay only a nominal quarterly dividend of $0.01 per common share to preserve our liquidity.

As of February 22, 2022, we have $959,467 of cash or cash equivalents.

We also have entered agreements to sell 45 properties with an aggregate carrying value of $352,540 for an aggregate sales price of $402,365 and have letters of intent or are in the process of marketing 43 additional properties with an aggregate carrying value of $150,962.

Our $1,000,000 revolving credit facility matures on July 15, 2022 and we have $500,000 of unsecured senior notes due in August 2022.

We currently expect that we will be able to either repay or extend the maturity of our debt coming due in 2022.

We are currently in discussions with our lenders regarding extending the term of our revolving credit facility and obtaining additional covenant relief.

We believe that our current financial resources, actions we have taken and are in the process of taking to manage our liquidity 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.

Management agreements and leases .

At December 31, 2020, we owned 310 hotels operated under seven agreements.

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

We have entered an agreement to sell five additional hotels and we have entered into a short term lease with the buyer for these hotels.

At December 31, 2021, we owned 303 hotels operated under six agreements.

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

We own 788 service-oriented properties with 174 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

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

Hotel agreements.

We terminated our agreement with IHG due to IHG’s failure to pay minimum returns and rents due to us, and transferred the branding and management of 102 of the 103 hotels managed by IHG to Sonesta during the fourth quarter of 2020.

We sent notices to Marriott terminating our agreement for its failure to cover the cumulative shortfalls between the payments we received and 80% of the cumulative priority returns due during 2020.

We are in dispute with Marriott and have submitted various claims for arbitration, including regarding the timing and characterization of certain minimum return advances made to us and the validity of the timing of the termination of the Marriott agreements.

Despite the arbitration claims, we and Marriott agreed to an orderly transition and we transferred the branding and management of nine hotels managed by Marriott to Sonesta in December 2020 and 78 hotels managed by Marriott to Sonesta in February 2021.

We expect to transfer 10 additional Marriott hotels to Sonesta in March 2021.

For further discussion of the arbitration matters, see Part 1, Item 3, “Legal Proceedings” and “Risk Factors—Risks Related to Our Business— We are a party to arbitration proceedings, which could adversely affect our financial results and/or distract our management ” and Note 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

In January 2021, we received a notice of termination from Hyatt with respect to our management agreement with it for 22 hotels as a result of the guarantee being exhausted.

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

However, if such discussions do not result in a mutually acceptable agreement, we expect to transition management of the 22 hotels to Sonesta in April 2021.

During 2021 we transitioned the branding and management of 88 hotels to Sonesta from Marriott, five hotels from Hyatt and one hotel from Radisson.

On June 7, 2021, we and Hyatt amended our previous agreement for 22 hotels we own, or our Hyatt agreement.

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

On November 1, 2021, we and Radisson amended our previous agreement for nine hotels we own, or our Radisson agreement.

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

On January 7, 2022, we amended and restated our management agreements with Sonesta effective January 1, 2022.

As of December 31, 2021, we own 261 hotels that are managed by Sonesta and 67 of these hotels are expected to be sold.

For further discussion of our hotel agreements with Hyatt, Radisson and Sonesta, see Note 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

Hotel portfolio .

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In 2021, the U.S.

hotel industry generally realized decreases in ADR, revenue per available room, or RevPAR, and occupancy compared to 2019.

During the year ended December 31, 2020, our 285 comparable hotels that we owned continuously since January 1, 2019 produced aggregate year over year decreases in ADR and RevPAR and a decline in occupancy.

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

For the year ended December 31, 2020 compared to the year ended December 31, 2019 for our 285 comparable hotels that we owned continuously since January 1, 2019, ADR decreased 20.6% to $96.18, occupancy decreased 28.7 percentage points to 44.8% and RevPAR decreased 51.6% to $43.09.

For the year ended December 31, 2020 compared to the year ended December 31, 2019 for all our 310 hotels, ADR decreased 23.0% to $100.77, occupancy decreased 31.0 percentage points to 42.0% and RevPAR decreased 55.7% to $42.32.

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

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

Year Ended December 31,

2021 2020 Change

of hotels 303 310 (7)

of rooms or suites 48,346 49,014 (668)

Occupancy 53.0 % 42.0 % 11.0 pts

ADR $ 105.36 $ 100.77 4.6 %

RevPAR $ 55.84 $ 42.32 31.9 %

Comparable hotels data .

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

For the years ended December 31, 2020 and 2019, we excluded 25 hotels from our comparable results.

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

For the years ended December 31, 2021 and 2020, SVC’s comparable results exclude 23 hotels that had suspended operations during part of the periods presented.

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

Year Ended December 31,

2021 2020 Change

Comparable Hotels

of hotels 280 280 —

of rooms or suites 42,101 42,101 —

Occupancy 54.2 % 44.1 % 10.1 pts

ADR $ 98.07 $ 96.84 1.3 %

RevPAR $ 53.15 $ 42.71 24.4 %

We believe these results are primarily due to the improved lodging fundamentals in the current year periods and disruption and displacement at certain of our hotels as a result of the COVID-19 pandemic that negatively affected results more in 2020.

Net Lease Portfolio.

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Acquisition Activities.

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

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

On March 12, 2020, we acquired three net lease properties with an aggregate of 6,696 square feet for a purchase price of $7,071 excluding closing costs in a single transaction.

During the year ended December 31, 2020, we acquired three net lease properties with an aggregate of 6,696 square feet for a purchase price of $7,071 excluding acquisition related costs in a single transaction.

During the year ended December 31, 2021, we acquired a land parcel adjacent to a property we own in Nashville, TN for a purchase price of $7,600, excluding acquisition related costs.

Disposition Activities.

During the year ended December 31, 2019, we sold 130 net lease properties that we acquired in the SMTA Transaction in 28 states with 2,773,241 square feet for an aggregate sales price of $513,012, excluding closing costs.

During the year ended December 31, 2020, we sold 18 hotels with 2,046 rooms for an aggregate sales price of $85,787, excluding closing costs.

Also during the year ended December 31, 2020, we sold 21 net lease properties with an aggregate of 1,375,483 rentable square feet for an aggregate sales price of $88,385, excluding closing costs, in 21 separate transactions.

We have entered into agreements to sell five hotels with 430 rooms in four states for an aggregate sales price of $22,263, excluding closing costs, and three net lease properties with an aggregate of 38,942 rentable square feet in two states for an aggregate sales price of $2,050, excluding closing costs.

Also during the year ended December 31, 2020, we sold 21 net lease properties with an aggregate of 1,375,483 rentable square feet for an aggregate sales price of $88,385, excluding closing costs.

During the year ended December 31, 2021, we sold seven hotels with 669 rooms for an aggregate sales price of $40,552, excluding closing costs.

Also during the year ended December 31, 2021, we sold 11 net lease properties with an aggregate of 97,276 rentable square feet for an aggregate sales price of $11,780, excluding closing costs.

In January 2022, we sold one hotel with 295 rooms for a sales price of $19,000, excluding closing costs.

We have also entered into agreements to sell 45 hotels with 5,680 rooms and an aggregate carrying value of $352,540 for an aggregate sales price of $402,365, excluding closing costs and have letters of intent or are in the process of marketing 43 additional properties with an aggregate carrying value of $150,962.

We currently expect the sales of these properties to be completed by the end of the second quarter of 2022.

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

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

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Total rental income 390,902 390,156 746 0.2 %

FF&E reserve income 201 4,739 (4,538) (95.8) %

Hotel operating expenses 1,010,737 682,804 327,933 48.0 %

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General and administrative 53,439 50,668 2,771 5.5 %

Transaction related costs — 1,795 (1,795) (100.0) %

Transaction related costs 64,764 15,100 49,664 n/m

Loss on asset impairment 78,620 55,756 22,864 41.0 %

Total expenses 1,709,183 1,318,444 390,739 29.6 %

Gain on sale of real estate, net 11,522 2,261 9,261 409.6 %

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

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

Unrealized gains (losses) on equity securities, net 19,882 (40,461) 60,343 n/m

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

Unrealized gains on equity securities, net 22,535 19,882 2,653 13.3 %

Interest income 664 284 380 133.8 %

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Loss on early extinguishment of debt — (9,394) 9,394 (100.0) %

Income (loss) before income taxes and equity earnings (losses) of an investee (284,261) 262,150 (546,411) n/m

Income tax expense (17,211) (2,793) (14,418) n/m

Equity in earnings (losses) of an investee (9,910) 393 (10,303) n/m

Net income (loss) $ (311,382) $ 259,750 $ (571,132) n/m

Weighted average shares outstanding (basic) 164,422 164,312 110 0.1 %

Weighted average shares outstanding (diluted) 164,422 164,340 82 n/m

Loss before income taxes and equity losses of an investee (544,603) (284,261) (260,342) n/m

Income tax benefit (expense) 941 (17,211) 18,152 n/m

Equity in losses of an investee (941) (9,910) 8,969 n/m

Net loss $ (544,603) $ (311,382) $ (233,221) n/m

Weighted average shares outstanding (basic and diluted) 164,566 164,422 144 0.1 %

Net income (loss) per common share:

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

For a comparison of consolidated results for the year ended December 31, 2019 compared to the year ended December 31, 2018 please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

For a comparison of consolidated results for the year ended December 31, 2020 compared to the year ended December 31, 2019 please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Hotel operating revenues.

The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies and lower ADR resulting from the COVID-19 pandemic ($1,110,859) and our hotel dispositions in 2020 ($18,142), partially offset by the conversion of one hotel from a leased to managed property ($14,926).

The increase in hotel operating revenues is primarily a result of higher occupancies and higher average rates at certain of our hotels in the 2021 period and the greater negative impact the COVID-19 pandemic had on our hotels in the 2020 period ($258,443), partially offset by the sale of certain of our hotels since January 1, 2020 ($28,863).

Additional operating statistics of our hotels are included in the tables on page 58.

Rental income - hotels.

The decrease in rental income - hotels is primarily a result of the conversion of one hotel from a leased to managed property during the 2019 period ($11,934), the termination of the lease for 48 vacation units at one hotel during 2020 ($4,144) and IHG’s default on the lease covering one hotel in San Juan, Puerto Rico ($2,636).

Rental income - hotels for the 2020 and 2019 periods include $1,897 and $985, respectively, of adjustments to record rent on a straight-line basis.

The decrease in rental income - hotels is primarily a result of the conversion of one hotel from a leased to managed property during 2020, partially offset by the conversion of five hotels from managed properties to leased properties in anticipation of sale of the properties ($700).

Rental income - net lease portfolio.

The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($86,433).

We increased rental income by $1,183 and reduced rental income by $9,734 for the 2020 and 2019 periods, respectively, to record scheduled rent increases under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight line basis.

Rental income for 2020 and 2019 includes $3,277 and $4,238, respectively, of percentage rental income.

FF&E Reserve income.

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

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

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

The decrease in FF&E reserve income is the result of our conversion of one hotel from leased to managed, decreased sales at one leased hotel in 2020 and the suspension of FF&E reserves for part of 2020.

The increase in rental income - net lease portfolio is primarily the result of lower reserves for uncollectible amounts in the 2021 period ($10,562), partially offset by the sale of certain net lease properties since January 1, 2020 ($4,433) and the result of certain vacancies and lease restructurings ($4,719).

Hotel operating expenses.

The decrease in hotel operating expenses is a result of a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($316,294), a decrease in occupancy at certain managed hotels primarily driven by the COVID-19 pandemic ($205,899), an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($203,119), our hotel dispositions in 2020 ($14,863), a decrease in real estate taxes at certain of our hotels ($2,875), and a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($734), partially offset by the conversion of one hotel from a leased to managed property during the 2020 period ($15,661) and for hotel manager transition related costs resulting from the rebranding of 115 hotels during the 2020 period ($15,100).

Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements.

When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our consolidated statements of comprehensive income (loss) as an increase to hotel operating expenses.

When our guarantees and security deposits are utilized to cover shortfalls of hotels’ cash flows from the minimum payments due to us, we reflect such utilizations in our consolidated statements of comprehensive income (loss) as a decrease to hotel operating expenses.

The net decrease to hotel operating expenses was $235,522 and $29,162 in 2020 and 2019, respectively, as a result of such utilization.

See “Impact of COVID-19” included in Part I, Item 1 of this Annual Report on Form 10-K for a discussion of the current status of our security deposits and guarantees.

The increase in hotel operating expenses is primarily the result of an increase in occupancy at certain managed hotels ($80,824), an increase in management fees ($32,427), increase in property insurance ($10,196) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($219,823), partially offset by the sale of certain hotels since January 1, 2020 ($15,337).

Other operating expenses.

The increase in other operating expenses is a result of operating expenses we pay at certain properties we acquired as part of the SMTA Transaction in 2019 being reflected for a full year in 2020 compared to the partial year in 2019.

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

Depreciation and amortization - hotels.

The decrease in depreciation and amortization - hotels is a result of our depreciable assets becoming fully depreciated since January 1, 2019 ($21,267), partially offset by depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 2019 ($15,803) and our hotel acquisitions since January 1, 2019 ($1,049).

The increase in depreciation and amortization - hotels is the result of an increase in depreciation expense from capital improvements made since January 1, 2020 ($7,228), partially offset by the sale of certain hotels and certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($4,260).

Depreciation and amortization - net lease portfolio.

The increase in depreciation and amortization - net lease portfolio is primarily a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($76,557), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019.

The decrease in depreciation and amortization - net lease portfolio is a result of certain of our depreciable assets becoming fully depreciated since January 1, 2020 ($12,157) and the depreciation and amortization of properties that were sold since January 1, 2020 ($3,754).

General and administrative.

The decrease in general and administrative costs is primarily due to a decrease in business management fees ($4,776) as a result of a decrease in our share price, partially offset by an increase in professional service expense ($805).

The increase in general and administrative costs is primarily due to higher business management fees as a result of an increase in our market capitalization ($5,307), partially offset by lower professional service expenses ($2,536) in the 2021 period.

Transaction related costs.

Transaction related costs represent costs related to our exploration of possible financing transactions.

Transaction related costs for the year ended December 31, 2021 include $38,446 of working capital advances we previously funded under our agreements with Marriott, IHG and Hyatt as a result of the amounts no longer expected to be recoverable, $19,920 of hotel manager transition related costs resulting from the rebranding of 94 hotels during the period, and $6,398 of legal costs related to our arbitration proceeding with Marriott.

Transaction related costs for the year ended December 31, 2020 primarily consisted of transition related costs resulting from the rebranding of 115 hotels previously managed by IHG, Marriott and Wyndham Hotels & Resorts, Inc.

Loss on asset impairment.

We recorded a $55,756 loss on asset impairment during 2020 to reduce the carrying value of 18 hotels and 13 net lease properties to their estimated fair value less costs to sell.

We recorded a $39,296 loss on asset impairment during 2019 to reduce the carrying value of two hotels and 19 net lease properties to their estimated fair value less costs to sell.

We recorded a $78,620 loss on asset impairment during the 2021 period to reduce the carrying value of 35 hotels and 26 net lease properties to their estimated fair value less costs to sell.

We recorded a $55,756 loss on asset impairment during the 2020 period to reduce the carrying value of 18 hotels and 13 net lease properties to their estimated fair value less costs to sell.

Gain on sale of real estate, net.

We recorded a $2,261 net gain on sale of real estate in 2020 in connection with the sales of 18 hotels and 21 net lease properties and a $159,535 gain on sale of real estate in 2019 in connection with the sales of 20 travel centers.

Dividend income.

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

We recorded a $11,522 net gain on sale of real estate in 2021 in connection with the sales of seven hotels and eleven net lease properties and a $2,261 net gain on sale of real estate in 2020 in connection with the sales of 18 hotels and 21 net lease properties.

Gain on insurance settlement.

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

Unrealized gains (losses) on equity securities, net.

Unrealized gains (losses) on equity securities, net represent the adjustments required to adjust the carrying value of our investments in RMR Inc., which we sold in July 2019, and TA common shares to their fair values during the applicable periods.

Unrealized gains on equity securities, net.

Unrealized gains on equity securities, net represent the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value for the applicable periods.

Interest income.

The decrease in interest income is due to lower interest rates and restricted cash balances in 2020.

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

Interest expense.

The increase in interest expense is due to higher average outstanding borrowings and a higher average interest rate in 2020.

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

Loss on early extinguishment of debt .

We recorded a loss of $9,394 on early extinguishment of debt, net of unamortized discounts and debt issuance costs, in 2020 related to our repayment of certain debt.

We recorded a loss of $8,451 on early extinguishment of debt in 2019 resulting from the termination of a term loan commitment we arranged in connection with the SMTA Transaction.

Income tax expense.

We recorded a $13,850 deferred tax liability as a result of the book value tax basis difference related to the accounting of an insurance settlement in 2020.

See Note 4 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further information regarding this insurance settlement.

Equity in earnings (losses) of an investee.

Equity in earnings (losses) of an investee represents our proportionate share of the earnings or losses of Sonesta and Affiliates Insurance Company.

Net income (loss).

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

Income tax benefit (expense).

The change in income tax benefit (expense) is primarily due to a decrease in state tax expenses during the 2021 period and a $13,850 deferred tax liability as a result of the book value tax basis difference related to the accounting of an insurance settlement we recorded in the 2020 period.

Equity in losses of an investee.

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

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

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

Our Managers and Tenants

As of December 31, 2020, 305 of our hotels were included in one of six hotel agreements and were managed by hotel operating companies.

We have entered into an agreement to sell five hotels and we have entered into a short term lease with the buyer of the hotels until the sale date.

As of December 31, 2021, all 303 of our hotels were managed by five hotel operating companies.

Our 788 net lease properties were leased to 174 tenants as of December 31, 2021.

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

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

As of December 31, 2020, our hotel managers included Sonesta (168 hotels), Marriott (105 hotels), Hyatt (22 hotels), Radisson (nine hotels) and IHG (one hotel).

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

As of December 31, 2021, our hotel managers included Sonesta (261 hotels), Hyatt (17 hotels), Radisson (eight hotels), Marriott (16 hotels) and IHG (one hotel).

TA is our largest tenant (179 travel centers).

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

Certain of our tenants’ businesses have been materially and adversely impacted by the COVID-19 pandemic, which may reduce their ability or willingness to pay us our minimum returns and rents, increase the likelihood they will default in paying us returns and rent and reduce the value of those properties.

We continue to carefully monitor the developments of the COVID-19 pandemic and its impact on our operators and tenants and our other stakeholders.

As a result of the depressed activity at our hotels and expected losses, several of our hotel operators

requested working capital advances from us to pay operating expenses.

During the year ended December 31, 2020, we advanced $123,475 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $44,859 to Sonesta, $37,000 to IHG, $30,000 to Marriott, $7,916 to Wyndham and $3,700 to Hyatt.

We may receive requests for working capital advances in 2021 if lodging activity continues to be depressed.

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

On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our business arrangements with respect to our hotels then managed by Sonesta as follows:

• we and Sonesta had agreed to sell, rebrand or repurpose our 39 extended stay hotels then managed by Sonesta.

We have since decided not to pursue the sale of these 39 hotels based on market conditions and the improved relative performance of these hotels during the pandemic;

• the annual minimum returns due for the 14 full-service hotels that Sonesta then managed and continues to manage were reduced from $99,013 to $69,013 as of that date;

• Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta, and a registration rights agreement with Sonesta;

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

• we and Sonesta modified the termination provisions of our then existing management agreements and pooling agreement and removed the provisions in our pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels;

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

We refer to the amended and restated management agreements in effect as of February 27, 2020, as the legacy management agreements and we refer to the amended and restated pooling agreement that includes those legacy management agreements as the legacy pooling agreement.

We previously leased 48 vacation units to Wyndham Destinations, Inc.

WYND) at our full-service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham.

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

We exhausted the security deposits that secured payments of our minimum rent held under our agreement with IHG in 2020.

We terminated our agreement with IHG for failure to pay minimum returns and rents due to us and transferred the branding and management of 102 of the 103 IHG hotels to Sonesta in December 2020.

We exhausted both the security deposit and the limited guaranty under the Marriott agreement in 2020.

Under the Marriott agreement, once the security deposit and guaranty have been depleted, Marriott was required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination.

We sent notices to Marriott terminating our agreement for its failure to cover the cumulative shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us for the year ended December 31, 2020.

Between September 18, 2020 and February 26, 2021, we transferred the branding and management of 193 hotels previously managed by IHG, Marriott and Wyndham to Sonesta.

We expect to transition the branding and management of 10 additional Marriott hotels to Sonesta in March 2021.

We entered into management agreements with Sonesta with respect to these hotels on terms substantially consistent with our legacy management agreements, except that the management agreements for these transitioned hotels expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier.

We also entered into a separate pooling agreement with Sonesta with respect to the conversion hotel management agreements.

The COVID-19 pandemic has had a material and adverse effect on the lodging and certain service industries and on our hotel managers’ and certain of our tenants’ businesses, which has in the past reduced, and may in the future reduce, their ability or willingness to pay us our owner's priority returns or rents, may increase the likelihood they will default in paying us returns and rent and reduce the value of those properties.

We continue to carefully monitor the effects and take appropriate action in response to developments with regard to the COVID-19 pandemic and its impact on our operators and our other stakeholders.

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

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

We sold one Marriott hotel in April 2021.

We were previously in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to us, and the validity of the timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels encumbered with a Marriott brand.

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

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

On January 18, 2022, the arbitration panel declined to award us the $19,120 we had sought relating to certain working capital advances we made to Marriott under the applicable management agreements, but awarded us approximately $1,084 in connection with a related claim and determined we would own the remaining 16 hotels unencumbered by Marriott contracts.

As a result, during the year ended December 31, 2021, we expensed $18,035 of working capital we previously funded under our Marriott agreement because the amount is no longer expected to be recoverable.

This amount is included in transaction related costs in our consolidated statement of income (loss).

We expect to sell or transition the branding and management of the remaining 16 Marriott branded hotels to Sonesta in the second quarter of 2022.

For further information regarding this sale or for further discussion of the arbitration matters, see “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K and Note 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

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

Under our Hyatt agreement, as amended, Hyatt continues to manage 17 hotels we own for a 10-year term effective April 1, 2021.

Our Hyatt agreement, as amended, set our annual owner's priority return at $12,000, and Hyatt provided us with a new $30,000 limited guarantee for 75% of the aggregate annual owner's priority returns due to us beginning in 2023.

Under our Hyatt agreement, as amended, a management fee of 5% of gross room revenues payable to Hyatt will be an operating cost paid senior to our owner's priority return.

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

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

In June 2021, we transitioned the branding and management of the remaining five hotels that Hyatt previously managed to Sonesta in June 2021.

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

Under our Radisson agreement, as amended, Radisson continues to manage eight hotels we own for a 10-year term effective August 1, 2021.

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

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

Radisson may also earn a 20% incentive management fee after payment of our annual owner's priority return and reimbursement of certain advances, if any.

We also agreed to fund approximately $12,000 of renovations that are expected to be completed by the end of 2022.

Also in November 2021, we transitioned the branding and management of the ninth hotel that Radisson previously managed to Sonesta.

As of December 31, 2021, we own 261 hotels that are managed by Sonesta and 67 of these hotels are expected to be sold, or the sale hotels.

In 2021 we transferred the branding and management of 94 hotels previously managed by Marriott, Hyatt and Radisson to Sonesta.

We entered into management and pooling agreements with Sonesta with respect to these hotels on terms substantially consistent with our legacy management and pooling agreements with Sonesta, except that the agreements for these transitioned hotels were set to expire on December 31, 2021.

On January 7, 2022, we and Sonesta amended and restated our management agreements effective January 1, 2022.

As of that date, we owned 261 hotels managed by Sonesta, including the 67 sale hotels.

Among other terms, the changes to the agreements between us and Sonesta for 194 hotels, or the retained hotels, are as follows:

• The term for the retained hotels expires on January 31, 2037 and includes two 15-year renewal options.

• All retained hotels are subject to a pooling agreement that combines the management agreements for the retained hotels for purposes of calculating gross revenues, hotel operating expenses, fees and distributions and the owner’s priority return due to us.

• The owner’s priority return for the retained hotels is initially set at $325,200 annually.

We have the right to terminate Sonesta’s management of specific hotels that we own if minimum performance thresholds are not met starting in 2023.

• We will renovate the retained hotels to comply with agreed upon brand standards.

As we advance such funding or fund other capital expenditures, the aggregate annual owner’s priority return due to us will increase by 6% of the amounts funded.

• Trade area restrictions by hotel brand have been added to define boundaries to protect our owned hotels in response to Sonesta increasing its franchising and third-party management activities.

For the sale hotels, the term was extended to the earlier of December 31, 2022 (or until the applicable hotel has been sold) and the FF&E reserve funding requirement was removed.

Our owner’s priority return will be reduced by the current owner’s priority return for a sale hotel once sold.

The total owner’s priority for all the sale hotels is $84,653.

See Notes 5 and 9 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information on these agreements.

In January 2021, we received a notice of termination from Hyatt with respect to our agreement for 22 hotels as a result of Hyatt’s guaranty being exhausted.

We and Hyatt are currently in discussions regarding possible changes to the management agreement that may enable some or all of the hotels to continue to be managed by Hyatt.

However, if such discussions do not result in a mutually acceptable agreement, we expect to transition management of these 22 hotels to Sonesta in April 2021.

TA, our largest tenant, is current on all its rent obligations to us as of February 26, 2021.

During the year ended December 31, 2020, we collected 94.0% of rents due to us from our net lease tenants.

During January 2021, we collected 89.3% of rents due to us from our net lease tenants.

We have entered into rent deferral agreements with 46 net lease retail tenants with leases requiring an aggregate of $46,370 of annual minimum rents.

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

As of February 26, 2021, we have deferred an aggregate of $12,115 of rent.

During the year ended December 31, 2021, we entered into rent deferral agreements for $2,792 of rent with four net lease tenants.

We had $7,554 of deferred rents outstanding related to seven tenants who represent approximately 2.0% of our annualized rental income of our net lease retail portfolio as of December 31, 2021.

Generally, the rent deferrals we have entered into are payable by the tenants over a 12 to 24 month period.

We may receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so.

In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.

Further, we do not know whether any of our tenants have qualified for, or will receive assistance from, the CARES Act or other government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us.

As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic downturn, we are unable to determine what the ultimate impact will be on our tenants and their ability and willingness to pay us rent and any additional impact this pandemic will have on our future cash flows.

During 2020 and 2019, we recorded reserves for uncollectible rents of $9,892 and $5,981, respectively, based on our assessment of whether amounts due under certain tenants’ leases are probable of collection.

In addition, if any of our tenants are unable to continue as going concerns as a result of the COVID-19 pandemic and its impact on economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.

As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic conditions, we are unable to determine what the ultimate impact will be on our tenants and their ability and willingness to pay us rent and any additional impact this pandemic will have on our future cash flows.

We reduced reserves for uncollectible amounts by $9 during the year ended December 31, 2021 and recorded reserves for uncollectible amounts of

$9,892 during the year ended December 31, 2020.

We had reserves for uncollectible rents of $15,519 and $18,230 as of December 31, 2021 and December 31, 2020, respectively, included in other assets in our consolidated balance sheets.

We define net lease coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio.

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

Coverage amounts include data for certain properties for periods prior to when we acquired them.

In instances where we do not have financial information for our portion of the measurement period from our tenants, we have calculated an implied EBITDAR for 2020 using industry benchmark data to more accurately reflect the impact of COVID-19 on our tenants’ operations.

We believe using only financial information from the earlier periods could be misleading as it would not reflect the negative impact those tenants experienced as a result of the COVID-19 pandemic.

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

As of December 31, 2020, our net lease properties generated coverage of 2.14x.

In instances where we do not have financial information for our portion of the measurement period from our tenants, we have calculated an implied EBITDAR for the period using industry benchmark data to more accurately reflect the current operating trends.

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

Our net lease properties generated coverage of 2.58x and 2.14x as of December 31, 2021 and 2020, respectively.

Our Operating Liquidity and Capital Resources

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

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

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

We receive owner's priority returns and rents from our managers and tenants monthly.

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

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

However, our managers and tenants may become further or increasingly unable or unwilling to pay minimum returns and rents to us when due as a result of current economic conditions and, as a result, our revenue, cash flow, and net income could decline.

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

economic activity and lodging demand, we have taken steps to preserve liquidity by reducing our quarterly distribution to our shareholders beginning in the second quarter of 2020 to $0.01 per share and we expect our quarterly distribution to continue at that rate for the foreseeable future, subject to applicable REIT tax requirements, by reducing expected capital expenditures, and by working with our hotel operators to reduce hotel operating expenses.

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

As discussed below, we expect the interest coverage ratio level necessary to incur additional debt under our senior notes indentures 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.

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

As of February 26, 2021, we have fully drawn our $1,000,000 revolving credit facility.

However, our managers and tenants may become further or increasingly unable or unwilling to pay owner's priority returns or rents to us when due as a result of economic conditions in response to the COVID-19 pandemic and, as a result, our revenue, cash flow, and net income could decline.

In response to the challenging operating environment posed by the COVID-19 pandemic, the slowdown in U.S.

economic activity experienced at times during the pandemic and the sharp decline in lodging demand beginning in March 2020, which has not recovered to pre-pandemic historical levels, we have taken steps to preserve liquidity by drawing down the remaining capacity on our $1,000,000 revolving credit facility, maintaining our quarterly distribution to our shareholders at $0.01 per share, which we expect to continue at that rate for the foreseeable future, subject to applicable REIT tax requirements, by selectively making capital expenditures, and by continuing to work with our hotel operators to reduce hotel operating expenses.

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

As of December 31, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we satisfy that covenant.

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

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

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Cash and cash equivalents and restricted cash at the end of the period $ 947,418 $ 91,456 $ 81,259

The decrease in cash flows provided by operating activities for the year ended December 31, 2020 as compared to the prior year period is primarily due to an increase in security deposit utilization in the 2020 period, lower returns earned from our hotel portfolio and higher interest expense in the 2020 period.

The decrease in cash flows used in investing activities in the 2020 period is primarily due to a decrease in real estate acquisition and disposition activity in the 2020 period.

The decrease in cash provided by financing activities for the year ended December 31, 2020 as compared to the prior year period is primarily due to a decrease in proceeds from the issuance of senior unsecured notes, our repayment of $400,000 aggregate principal amount of senior unsecured notes and lower common share distributions compared to the 2019 period, partially offset by greater net repayments under our revolving credit facility.

The increase in cash flows provided by operating activities for the year ended December 31, 2021 as compared to the prior year period is primarily due to higher returns earned from our hotel portfolio in the 2021 period and the impact of utilizing security deposits in the 2020 period.

The increase in cash flows used in investing activities in the 2021 period as compared to the prior year period is primarily due to lower proceeds during the 2021 period from property sales compared to 2020, an increase in hotel capital expenditures and a capital contribution we made to Sonesta in the 2021 period.

The increase in cash provided by financing activities for the 2021 period as compared to the prior year period is primarily due to a draw down of the remaining capacity on our $1,000,000 revolving credit facility compared to net repayments of borrowings under the revolving credit facility in 2020, a decrease in net senior notes issuances and lower common share distributions compared to the 2020 period.

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

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

During the year ended December 31, 2020, our hotel managers and tenants deposited $40,323 to these accounts and spent $153,626 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

During the year ended December 31, 2021, certain of our hotel managers deposited $18,385 to these accounts and spent $24,565 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of December 31, 2021, there was $2,338 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash.

As a result of the COVID-19 pandemic and the adverse impact on the lodging industry and our properties, we and certain of our hotel operators agreed to temporarily suspend the required contribution to our FF&E reserves under certain of our agreements through December 31, 2020.

For more information, see Note 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

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

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

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

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

We funded $4,623 of capital improvements to properties under these lease provisions during the year ended December 31, 2020.

We did not fund any capital improvements to our properties that we leased to TA during the year ended December 31, 2021.

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

During the year ended December 31, 2021, we funded $1,188 for capital improvements to our other net lease properties.

As of December 31, 2021, we had $4,310 of unspent leasing-related obligations related to certain net lease tenants.

During the year ended December 31, 2020, we acquired three net lease properties with approximately 6,696 square feet in two states for an aggregate purchase price of $7,071, including acquisition related costs of $71, using cash on hand.

During the year ended December 31, 2020, we sold 18 hotels with 2,046 rooms for aggregate net proceeds of $81,981.

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

During the year ended December 31, 2020, we sold 21 net lease properties with an aggregate of 1,375,483 rentable square feet for aggregate net proceeds of $85,561 in 21 separate transactions.

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

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

We have also entered into agreements to sell three net lease properties with an aggregate of approximately 38,942 square feet with an aggregate carrying value of $1,746 for an aggregate sale price of $2,050, excluding closing costs.

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

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

During the year ended December 31, 2021, we sold seven hotels with 669 rooms for aggregate net proceeds of $39,635 and we sold 11 net lease properties with an aggregate of 97,276 rentable square feet for aggregate net proceeds of $11,502.

We used the net proceeds from these sales for general business purposes.

In January 2022, we sold one hotel with 295 rooms and a carrying value of $12,016 for a sales price of $19,000, excluding closing costs.

The sales of these properties are subject to conditions;

accordingly, we cannot provide any assurance that we will sell any of these properties and the terms of any of these properties we may sell may change.

We terminated an agreement we entered to sell 16 Marriott brand hotels with 2,155 rooms for a sales price of $107,800.

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

The aggregate net proceeds from this offering were $787,718, after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility.

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

In July 2020, we participated in an underwritten public equity offering by TA pursuant to which we purchased 500,797 shares of TA common stock at the public offering price of $14.00 per share for $7,011, using cash on hand.

In November 2020, we issued $450,000 principal amount of our 5.50% unsecured senior notes due 2027.

The aggregate net proceeds from this offering were $442,232, after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility.

In December 2020, we redeemed the remaining $50,000 of our 4.25% senior notes due 2021 for a redemption price equal to the principal amount, plus accrued and unpaid interest using cash on hand.

In January 2021, the landlord for one of our hotels subject to a ground lease exercised its purchase option to acquire our leasehold interest for our net book value, which was $9,753 as of December 31, 2020.

We expect this transaction to close in April 2021 and we expect to use the proceeds from this sale to repay amounts outstanding under our revolving credit facility.

In January 2021, we entered into an agreement to acquire a property adjacent to one of our travel centers in Nashville, TN for $7,600, excluding closing costs.

We expect to complete this transaction in the first quarter of 2021 using cash on hand.

During the year ended December 31, 2020, we declared and paid quarterly distributions to common shareholders using cash on hand or borrowings under our revolving credit facility as follows:

We expect to use the proceeds from the asset sales for general business purposes, which may include the repayment of debt.

During the year ended December 31, 2021, we declared and paid quarterly distributions to common shareholders using cash on hand as follows:

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

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

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

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

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

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We paid this amount on February 17, 2022 using cash on hand.

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $1,000,000 revolving credit facility and, until it was repaid without penalty on November 5, 2020, a $400,000 term loan which are governed by a credit agreement with a syndicate of institutional lenders.

The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of this facility by two additional six-month periods.

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $1,000,000 revolving credit facility which is governed by a credit agreement with a syndicate of institutional lenders.

The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions as noted below, we have an option to extend the maturity date of this facility by two additional six-month periods.

We are required to pay interest at the rate of LIBOR plus a premium, which was 235 basis points per annum, subject to a LIBOR floor of 0.50% at December 31, 2021, on the amount outstanding under our revolving credit facility.

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

As of December 31, 2020, we had $78,424 outstanding and $921,576 available to borrow under our revolving credit facility.

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

As of February 26, 2021, we have fully drawn our $1,000,000 revolving credit facility.

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

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

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

• we were required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000;

• our interest rate premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points;

• our ability to pay distributions on our common shares was limited to amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes, and to pay a cash dividend of $0.01 per common share per quarter;

• we were subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases);

• we were generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic-related government stimulus programs to the repayment of outstanding loans under the credit agreement;

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

These subsidiaries owned properties with $1,027,334 of undepreciated book value as of December 31, 2020.

As a result of the November 2020 amendment:

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

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

• we pledged certain additional 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 $1,834,748 as of December 31, 2020 to secure our obligations under the credit agreement;

As of December 31, 2021, we were fully drawn under our $1,000,000 revolving credit facility and remain fully drawn as of February 22, 2022.

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

Among other things, the amendments waived all of the then existing financial covenants through the end of the current agreement term, or July 15, 2022.

As a result of the amendments, among other things:

• we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $1,834,420 as of December 31, 2021 to secure our obligations under the credit agreement;

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

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

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

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

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

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

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

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

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

As noted above, our revolving credit facility matures on July 15, 2022 and we may be unable to meet the conditions required to exercise the extension option provided for in our credit agreement.

We are in discussions with our lenders regarding a potential extension of the existing waivers or additional covenant waivers, but we cannot assure that we will be granted any such relief.

We currently expect we will have enough cash to repay the amounts outstanding on our revolving credit facility using existing cash balances and proceeds we expect to receive from asset sales or other capital transactions we may complete prior to its maturity.

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

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2024 1,175,000

2025 1,150,000

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

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

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

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

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

We have an effective shelf registration

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

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

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

We may also seek to participate in joint ventures or other arrangements that may provide us additional sources of financing.

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

While we believe we will have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.

Also, as noted above, we are limited in our ability to incur additional debt during the New Waiver Period pursuant to our credit agreement and will not be able to incur any debt if we fall below the 1.5x interest coverage ratio level necessary under our senior notes indentures as described below.

While we believe we will generally have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.

Also, as noted above, we are currently limited in our ability to incur additional debt pursuant to our debt agreements and are currently unable to incur any additional debt while we are below the 1.5x debt service coverage ratio requirement under our public debt covenants as described below.

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

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

As of December 31, 2020, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement, subject to the waivers described above.

As noted above, in response to the current market conditions, we and our lenders amended our credit agreement to provide waivers of certain covenants.

As of December 31, 2021, we believe we were in compliance with all of the covenants under our

indentures and their supplements and our credit agreement, subject to the waivers described above and except as otherwise noted above and below.

Senior Notes Indenture Covenants

As of December 31, 2020, we are in compliance with all of the financial covenants applicable to our senior unsecured notes.

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

Actual Results Covenant Requirement

Maintenance Covenant:

Total unencumbered assets / unsecured debt 167.3% Minimum 150%

Incurrence Covenants:

Total debt / adjusted total assets 56.4% Maximum of 60%

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Consolidated income available for debt service / debt service 1.20x Minimum of 1.50x

Total unencumbered assets / unsecured debt 176.3% Minimum 150%

The above consolidated income available for debt service to debt service coverage ratio as of December 31, 2021 is based on results for the year ended December 31, 2021.

This ratio was 2.86x as of year-end 2019, and, as noted above, was 1.56x as of December 31, 2020.

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.

This ratio was 1.56x as of year-end December 31, 2020 and, as noted above, 1.20x as of December 31, 2021.

We are currently unable to incur additional debt while we remain below the required covenant level.

Acceleration and Cross-Default

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

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

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

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Supplemental Guarantor Information

In March 2020, the SEC approved Release No.

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

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

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

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

Our 2025 Notes and 2027 Notes are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement.

Our $800,000 of 7.50% unsecured senior notes due 2025, or the 2025 Notes, and our $450,000 of 5.50% unsecured senior notes due 2027, or the 2027 Notes, are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement.

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

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

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

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

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

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

The rights of holders of these notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders.

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For further information about these and other such relationships and related person transactions, see Notes 4, 5, 8 and 9 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC, including our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2021.

For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” “Business” in Part I, Item 1 and “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

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

Critical Accounting Estimates

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Incorrect assumptions or estimates may result in misclassification of our leases.

See Note 2 to consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion on the impact to our accounting for leases due to recent accounting pronouncements.

See Note 2 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion on the impact to our accounting for leases due to recent accounting pronouncements.

We account for income taxes in accordance with the Income Taxes Topic of the Codification.

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Comparable Hotels* No.

of Hotels No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Year Ended December 31, Year Ended December 31, Year Ended December 31,

Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Crowne Plaza Full Service 1 495 46.6 % 29.6 % 17.0 pts 111.83 111.50 0.3 % 52.11 33.00 57.9 %

Marriott Hotel Full Service 1 392 36.9 % 81.8 % (44.9) pts 133.42 161.57 (17.4) % 49.23 132.16 (62.7) %

Radisson Blu Full Service 1 360 22.9 % 78.2 % (55.3) pts 108.76 149.96 (27.5) % 24.91 117.27 (78.8) %

Country Inn and Suites Full Service 1 84 51.5 % 40.0 % 11.5 pts 87.47 83.33 5.0 % 45.05 33.33 35.2 %

Full Service Total/Average 32 10,020 44.4 % 32.9 % 11.5 pts 121.91 119.73 1.8 % 54.13 39.39 37.4 %

Courtyard Select Service 62 9,115 31.4 % 69.2 % (37.8) pts 112.60 137.16 (17.9) % 35.36 94.91 (62.7) %

Hyatt Place Select Service 22 2,724 44.7 % 77.3 % (32.6) pts 90.96 108.11 (15.9) % 40.66 83.57 (51.3) %

Sonesta Select (1)

Select Service 63 8,888 37.2 % 30.9 % 6.3 pts 100.94 107.61 (6.2) % 37.55 33.25 12.9 %

Springhill Suites (1)

Select Service 2 263 25.9 % 73.2 % (47.3) pts 102.16 139.95 (27.0) % 26.46 102.44 (74.2) %

Hyatt Place Select Service 17 2,107 60.7 % 45.1 % 15.6 pts 101.76 92.88 9.6 % 61.77 41.89 47.5 %

Courtyard Select Service 13 1,813 50.7 % 30.0 % 20.7 pts 103.14 92.68 11.3 % 52.29 27.80 88.1 %

Select Service Total/Average 93 12,808 43.0 % 33.1 % 9.9 pts 101.50 102.40 (0.9) % 43.65 33.89 28.8 %

Simply Suites (1)

Extended Stay 59 7,309 64.2 % 78.1 % (13.9) pts 67.67 82.07 (17.5) % 43.44 64.10 (32.2) %

Sonesta ES Suites (1)

Extended Stay 90 11,233 65.9 % 53.7 % 12.2 pts 100.09 102.18 (2.0) % 65.96 54.87 20.2 %

Residence Inn Extended Stay 35 4,488 47.1 % 75.1 % (28.0) pts 117.87 135.75 (13.2) % 55.52 101.95 (45.5) %

TownePlace Suites Extended Stay 4 487 42.0 % 73.2 % (31.2) pts 108.66 122.24 (11.1) % 45.64 89.48 (49.0) %

Sonesta Simply Suites (1)

Extended Stay 62 7,698 68.6 % 62.8 % 5.8 pts 71.06 69.52 2.2 % 48.75 43.66 11.7 %

Residence Inn Extended Stay 3 342 57.2 % 42.0 % 15.2 pts 110.01 104.26 5.5 % 62.93 43.79 43.7 %

Extended Stay Total/Average 155 19,273 66.8 % 57.2 % 9.6 pts 88.40 87.85 0.6 % 59.05 50.25 17.5 %

Comparable Hotels Total/Average 280 42,101 54.2 % 44.1 % 10.1 pts $ 98.07 $ 96.84 1.3 % $ 53.15 $ 42.71 24.4 %

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

For the years ended December 31, 2021 and 2020, our comparable results excluded 23 hotels that had suspended operations during part of the periods presented.

All Hotels* No.

of Hotels No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Year Ended December 31, Year Ended December 31, Year Ended December 31,

Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand 2021 2020 Change 2021 2020 Change 2021 2020 Change

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Radisson Hotel Full Service 5 1,149 50.4 % 32.1 % 18.3 pts 105.23 108.73 (3.2) % 53.04 34.90 52.0 %

Marriott Hotel Full Service 2 748 30.8 % 84.4 % (53.6)Pts 198.28 231.62 (14.4) % 61.07 195.49 (68.8) %

Crowne Plaza Full Service 1 495 46.6 % 29.6 % 17.0 pts 111.83 111.50 0.3 % 52.11 33.00 57.9 %

Country Inn and Suites Full Service 3 430 50.0 % 25.9 % 24.1 pts $ 109.10 $ 99.25 9.9 % $ 54.55 $ 25.71 112.2 %

Radisson Blu Full Service 1 360 22.9 % 78.2 % (55.3)Pts 108.76 149.96 (27.5) % 24.91 117.27 (78.8) %

Full Service Total/Average 51 15,777 43.5 % 29.6 % 13.9 pts 143.02 133.28 7.3 % 62.21 39.45 57.7 %

Courtyard Select Service 62 9,115 31.4 % 69.2 % (37.8)Pts 112.60 137.16 (17.9) % 35.36 94.91 (62.7) %

Hyatt Place Select Service 22 2,724 44.7 % 77.3 % (32.6)Pts 90.96 108.11 (15.9) % 40.66 83.57 (51.3) %

Sonesta Select (1)

Select Service 63 8,888 41.8 % 30.9 % 10.9 pts 100.94 107.61 (6.2) % 42.19 33.25 26.9 %

SpringHill Suites Select Service 2 263 25.9 % 73.2 % (47.3)Pts 102.16 139.95 (27.0) % 26.46 102.44 (74.2) %

Hyatt Place Select Service 17 2,107 63.3 % 45.1 % 18.2 pts 101.76 92.88 9.6 % 64.41 41.89 53.8 %

Courtyard Select Service 13 1,813 50.8 % 30.0 % 20.8 pts 103.14 92.68 11.3 % 52.40 27.80 88.5 %

Select Service Total/Average 93 12,808 43.0 % 33.1 % 9.9 pts 101.50 102.40 (0.9) % 43.65 33.89 28.8 %

Simply Suites (1)

Extended Stay 61 7,553 63.5 % 77.3 % (13.8)Pts 67.42 81.68 (17.5) % 42.81 63.14 (32.2) %

Sonesta ES Suites (1)

Extended Stay 91 11,379 65.4 % 53.4 % 12.0 pts 100.25 102.28 (2.0) % 65.56 54.62 20.0 %

Residence Inn Extended Stay 35 4,488 47.1 % 75.1 % (28.0)Pts 117.87 135.75 (13.2) % 55.52 101.95 (45.5) %

TownePlace Suites Extended Stay 4 487 42.0 % 73.2 % (31.2)Pts 108.66 122.24 (11.1) % 45.64 89.48 (49.0) %

Sonesta Simply Suites (1)

Extended Stay 65 8,040 66.9 % 62.2 % 4.7 pts 70.58 69.11 2.1 % 47.22 42.99 9.8 %

Residence Inn Extended Stay 3 342 58.6 % 42.0 % 16.6 pts 110.01 104.26 5.5 % 64.47 43.79 47.2 %

Extended Stay Total/Average 159 19,761 66.8 % 56.8 % 10.0 pts 88.08 87.51 0.7 % 58.84 49.71 18.4 %

All Hotels Total/Average 303 48,346 53.0 % 42.0 % 11.2 pts $ 105.36 $ 100.77 4.3 % $ 55.84 $ 42.32 32.2 %

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

Excludes the results of hotels sold during the periods presented.

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

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

Net Lease Portfolio

As of December 31, 2021, our net lease properties were 98.1% occupied and we had 30 properties available for lease.

During the year ended December 31, 2020, we entered into lease renewals for 1,412,063 rentable square feet at weighted (by rentable square feet) average rents that were 7.9% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 11.0 years and leasing concessions and capital commitments were $12,571, or $8.90 per square foot.

Also during the year ended December 31, 2020, we entered into new leases for an aggregate of 92,285 rentable square feet at weighted (by rentable square feet) average rents that were 45.2% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 8.8 years and leasing concessions and capital commitments were $1,302, or $14.11 per square foot.

As of December 31, 2020, our net lease tenants operated across more than 127 brand concepts.

During the year ended December 31, 2021, we entered into lease renewals for 828,452 rentable square feet (30 properties) at weighted (by rentable square feet) average rents that were 2.7% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.1 years.

Also during the year ended December 31, 2021, we entered into new leases for an aggregate of 185,288 rentable square feet (12 properties) at weighted (by rentable square feet) average rents that were 27.4% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.1 years.

As of December 31, 2021, our net lease tenants operated across more than 134 brands.

The following table identifies the top ten brands based on annualized minimum rent.

of Buildings (1)

Square Feet Investment (2)

of Buildings Investment (1)

Percent of Total Investment Annualized

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Percent of Total Annualized

Minimum Rent Coverage (4)

Minimum Rent (2)

TravelCenters of America 134 $ 2,289,189 44.6 % $ 168,012 45.4 % 2.26x

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Heartland Dental 59 61,120 1.2 % 4,561 1.2 % 4.36x

Pizza Hut 58 189,609 58,312 1.1 % 3,954 1.1 % 1.42x

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

Express Oil Change 23 49,724 1.0 % 3,717 1.0 % 4.34x

Flying J Travel Plaza 3 48,069 41,681 0.8 % 3,151 0.9 % 3.75x

Regal Cinemas 6 44,476 0.9 % 3,658 1.0 % 0.17x

478 1,241,808 24.2 % 83,784 22.8 % 3.39x

Total 788 $ 5,131,191 100.0 % $ 369,733 100.0 % 2.58x

(1) As of December 31, 2020, we have six net lease properties with a carrying value of $2,844 classified as held for sale.

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

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(3) See page 64 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

(4) Consists of 124 distinct brands with an average investment of $10,140 and average annual minimum rent of $676.

As of December 31, 2020, our top ten net lease tenants based on annualized minimum rent are listed below.

As of December 31, 2021, our top ten net lease tenants based on our investments are listed below.

Tenant Brand Affiliation No.

of Buildings (1)

Square Feet Investment (2)

of Buildings Investment (1)

Percent of Total Investment Annualized

1 unchanged sentence

Percent of Total Annualized

Minimum Rent Coverage (4)

TravelCenters of America TravelCenters of America/ Petro Shopping Centers 179 5,190,696 $ 3,302,815 64.0 % $ 246,110 66.6 % 1.83x (5) (6)

Minimum Rent (2)

TravelCenters of America TravelCenters of America / Petro Stopping Centers 179 $ 3,310,415 64.5 % $ 246,110 66.6 % 2.18x (4)

American Multi-Cinema, Inc.

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Heartland Dental 59 61,120 1.2 % 4,561 1.2 % 4.36x

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

Express Oil Change, L.L.C.

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Regal Cinemas 6 44,476 0.9 % 3,658 1 % 0.17x

Pilot Travel Centers LLC Flying J Travel Plaza 3 48,069 41,681 0.8 % 3,151 0.9 % 3.50x

Automotive Remarketing Group, Inc.

Automotive Remarketing Group 6 72,338 34,314 0.7 % 2,992 0.8 % 4.85x

Pilot Travel Centers LLC Pilot Travel Center 3 41,681 0.8 % 3,183 0.9 % 4.03x

Subtotal, top 10 313 3,931,064 76.6 % 289,131 78.2 % 2.37x

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Total 788 $ 5,131,191 100.0 % $ 369,733 100.0 % 2.58x

(1) As of December 31, 2020, we have six net lease properties with a carrying value of $2,844 classified as held for sale.

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

(3) Each of the leases in our net lease portfolio provides for payment to us of minimum rent.

(2) Each of our leases provides for payment to us of minimum rent.

Certain of these minimum payment amounts are secured by full or limited guarantees.

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(3) See page 64 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

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

(4) TA is our largest tenant.

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of Buildings (1)

Square Feet Investment (2)

Investment (1)

Percent of Total Investment Annualized Minimum

Percent of Total Annualized

Minimum Rent Coverage (4)

Minimum Rent (2)

Travel Centers 182 $ 3,352,096 65.3% $ 249,293 67.5 % 2.20x

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Restaurants-Casual Dining 53 192,170 3.7% 9,642 2.6 % 2.00x

Health and Fitness 14 870,841 189,215 3.7% 11,541 3.1 % 1.06x

Movie Theaters 22 190,725 3.7% 14,008 3.8 % 0.23x

Grocery 19 1,020,819 129,219 2.5% 9,112 2.5 % 4.64x

Health and Fitness 13 185,458 3.6% 10,964 3.0 % 1.45x

Grocery Stores 19 129,219 2.5% 9,180 2.5 % 5.38x

Home Goods and Leisure 20 118,899 2.3% 9,041 2.4 % 7.79x

Medical, Dental Office 71 118,098 2.3% 9,355 2.5 % 4.19x

Miscellaneous Retail 19 598,731 114,433 2.2% 8,892 2.4 % 1.99x

Automotive Parts and Service 63 210,152 96,496 1.9% 6,583 1.8 % 3.22x

Automotive Dealers 9 172,251 64,756 1.3% 5,125 1.4 % 4.99x

Automotive Equipment & Services 64 98,473 1.9% 7,126 1.9 % 3.19x

Entertainment 4 61,436 1.2% 4,343 1.2 % 2.18x

Sporting Goods 3 331,864 52,022 1.0% 3,549 1.0 % 3.15x

Automotive Dealers 8 60,119 1.2% 5,080 1.4 % 6.16x

General Merchandise Stores 5 56,321 1.1% 3,892 1.1 % 3.24x

Educational Services 9 55,647 1.1% 4,376 1.2 % 1.42x

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Drug Stores and Pharmacies 7 19,251 0.4% 1,258 0.3 % 1.95x

Home Furnishings 3 96,388 12,946 0.3% 1,686 0.5 % 1.11x

Sporting Goods 3 17,595 0.3% 1,081 0.2 % 5.12x

Legal Services 5 11,362 0.2% 1,119 0.2 % -2.75x

Apparel 1 89,305 11,027 0.2% 670 0.2 % 3.14x

General Merchandise 3 99,233 7,492 0.1% 541 0.1 % 3.48x

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

12 252,834 56,217 0.7% 2,279 0.3 % 4.33x

Vacant 18 147,358 42,503 0.8% — — % —

Other 4 10,419 0.2% 2,241 0.6 % 2.52x

Vacant 30 56,556 1.1% — — % n/a

Total 788 $ 5,131,191 100.0% $ 369,733 100.0 % 2.58x

(1) As of December 31, 2020, we have six net lease properties with a carrying value of $2,844 classified as held for sale.

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

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(3) See page 64 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

(5) Others includes properties with an average investment of $4,685 per building.

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

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Square Annualized Minimum Annualized Minimum Total Minimum

Feet Rent Expiring (2)

Rent Expiring Rent Expiring

Feet Rent Expiring Rent Expiring Rent Expiring

2022 384,823 2,939 0.8% 0.8%

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2041 223,043 2,189 0.6% 99.6%

2042 57,499 155 0.0% 99.6%

2043 — — 0.0% 99.6%

2044 — — 0.0% 99.6%

2045 63,489 1,584 0.4% 100.0%

Total 13,266,385 $ 369,733 100.0%

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

(2) As of December 31, 2020, we have six net lease properties with a carrying value of $2,844 classified as held for sale.

As of December 31, 2021, shown below is the list of our top ten states where our net lease properties are located.

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Texas 1,205,393 $ 32,399 8.8%

Illinois 1,302,273 26,304 7.1%

Ohio 1,302,273 26,241 7.1%

Illinois 1,016,187 26,108 7.1%

California 399,045 21,774 5.9%

Georgia 597,248 20,180 5.5%

Florida 538,130 16,117 4.4%

Arizona 476,651 16,865 4.6%

Indiana 637,239 16,994 4.6%

Pennsylvania 543,959 15,534 4.2%

Arizona 476,651 16,287 4.4%

Florida 538,130 16,026 4.3%

New Mexico 246,478 10,485 2.8%

6,503,619 166,859 45.3%

Nevada 190,262 9,625 2.6%

Other 6,615,673 167,896 45.2%

Total 13,522,060 $ 369,733 100.0%

(1) Includes properties located in 32 states.

Our hotels and travel centers have historically experienced seasonal differences typical of their industries with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters.

Most of our leases require our tenants to make the substantial portion of our rent payments to us in equal amounts throughout the year.

However, our financial results are expected to reflect more of the seasonality of the lodging industry given historical guarantees and security deposits that have historically supplemented our earnings have been mostly exhausted.

The return payments to us under certain of our management agreements depend exclusively upon earnings at these properties and, accordingly, our income and cash flows from these properties reflect the seasonality of the hotel industry.

The COVID-19 pandemic and current economic conditions have, and may in the future, significantly alter the seasonal aspects of our business, including negatively affecting the historical increased business we typically experienced in the second and third quarters.

The COVID-19 pandemic and current economic conditions have significantly altered the seasonal aspects of our business and may continue to do so, including negatively affecting the historical increased business we typically experienced in the second and third quarters.

Impact of Climate Change

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Non-GAAP Financial Measures

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

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

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

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

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

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

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

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We calculate FFO and Normalized FFO as shown below.

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

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

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

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

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

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

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

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

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Transaction related costs (5)

64,764 15,100 1,795

Loss on early extinguishment of debt (6)

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Gain on insurance settlement, net of tax (8)

Hotel manager transition related costs (9)

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

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Distributions declared per share $ 0.04 $ 0.57 $ 2.15

(1) We recorded a $11,522 net gain on sales of seven hotels and eleven net lease properties during the year ended December 31, 2021.

We recorded a $2,261 net gain on sales of 18 hotels and 21 net lease properties during the year ended December 31, 2020.

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(2) We recorded a $78,620 loss on asset impairment during the year ended December 31, 2021 to reduce the carrying value of 35 hotels and 26 net lease properties to their estimated fair value.

We recorded a $55,756 loss on asset impairment during the year ended December 31, 2020 to reduce the carrying value of 18 hotels and 13 net lease properties to their estimated fair value.

We recorded a $39,296 loss on asset impairment during the year ended December 31, 2019 to reduce the carrying value of 19 net lease properties to their estimated fair value less costs to sell and two hotels to their estimated fair value.

(3) Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in TA common shares to their fair value as of December 31, 2020 and the adjustment required to adjust the carrying value of our investments in RMR Inc.

and TA common shares to their fair value as of December 31, 2019 and 2018, respectively.

We sold our shares of RMR Inc.

on July 1, 2019.

(4) Represents our proportionate share of our equity investment in Sonesta during the year ended December 31, 2020 and Affiliates Insurance Company during the years ended December 31, 2019 and 2018.

(5) Transaction related costs represents costs related to our exploration of possible financing transactions during the year ended December 31, 2019.

(6) We recorded a loss of $9,394 during the year ended December 31, 2020, on extinguishment of debt relating to our repayment of our $400,000 term loan and certain unsecured senior notes.

We recorded a $8,451 loss on early extinguishment of debt in the year ended December 31, 2019 related to the termination of a term loan commitment we arranged in connection with the acquisition of a net lease portfolio and $160 on early extinguishment of debt during the year ended December 31, 2018 in connection with an amendment to our credit agreement.

(3) Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in TA common shares to their fair value.

(4) Represents our proportionate share of our equity investment in Sonesta during the years ended December 31, 2021 and 2020.

(5) Transaction related costs for the year ended December 31, 2021 include $38,446 of working capital advances we previously funded under our agreements with Marriott, IHG and Hyatt as a result of the amounts no longer expected to be recoverable, $19,920 of hotel manager transition related costs resulting from the rebranding of 94 hotels to Sonesta during the period, and $6,398 of legal costs related to our arbitration proceeding with Marriott.

Transaction costs for the year ended December 31, 2020 include $15,100 of hotel manager transition related costs resulting from the rebranding of 115 hotels to Sonesta during the periods.

Transaction related costs for the year ended December 31, 2019 represents costs related to our exploration of possible financing transactions.

(6) We recorded a loss of $9,394 loss on early extinguishment of debt, net of unamortized discount and deferred financing costs, relating to the repurchase of certain of our senior notes during the year ended December 31, 2020.

(7) Hotel operating expenses for the year ended December 31, 2020 include a $3,962 loss contingency related to a litigation matter at certain hotels.

We recorded a $1,997 loss contingency during the year ended December 31, 2019 for an expected settlement of a historical pension withdrawal liability for a hotel we rebranded.

(8) We recorded a $62,386 gain on insurance settlement during the year ended December 31, 2020 for insurance proceeds received for our leased hotel in San Juan, PR related to Hurricane Maria.

(8) We recorded a $62,386 gain on insurance settlement during the year ended December 31, 2020 for insurance proceeds received for our then leased hotel in San Juan, PR related to Hurricane Maria.

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

We also recorded a $13,850 deferred tax liability as a result of the book value to tax basis difference related to this accounting during the year ended December 31, 2020.

(9) Hotel operating expenses for the year ended December 31, 2020 include $15,100 of hotel manager transition related costs resulting from the rebranding of 115 hotels during the periods.

(9) Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis