What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 201 added, 197 removed, 505 unchanged (44% of the section changed)

3 unchanged sentences

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

As of June 30, 2022, we owned 1,022 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

As of September 30, 2022, we owned 1,011 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

Business Environment and Outlook.

As a result of the COVID-19 pandemic and the impact it has had on travel and the broader economy throughout the U.S.

since March 2020, our hotels have experienced significant declines in occupancy, which have had and are expected to continue to have a significant negative effect on our operating results and cash flow.

As a result of the COVID-19 pandemic, and the market practices that arose or increased in response to the pandemic, the impacts they have had on travel and the broader economy throughout the U.S.

since March 2020, our hotels have experienced significant declines in occupancy, which have had a significant negative effect on our operating results and cash flow.

While occupancy has since recovered significantly, there remains uncertainty as to when and if operations at our hotels will return to pre-pandemic levels.

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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 and conditions.

These trends, together with increasing labor costs and shortages and commodity and other price inflation and supply chain challenges, may continue to negatively impact our hotel operations and financial results.

Federal Reserve has recently raised interest rates in an effort to combat high inflation, which could result in negative consequences in the U.S.

economy, and concerns about a potential recession are becoming more pronounced.

A recession could adversely affect our financial condition, operations at our hotels, our tenants, and their ability and willingness to renew our leases or pay rent to us, our ability to effectively deploy our capital or realize upon investments on favorable terms and the values of our properties and other investments.

We could also be affected by any overall weakening of, or disruptions in, the financial markets, including our ability to obtain new or replacement financing and the costs of any such financings.

In addition, consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, 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 and conditions.

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate and has signaled that further large increases are likely to occur.

These inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S.

economy is now in, or may soon enter, an economic recession and they have caused disruptions in the financial markets.

An economic recession, or continued or intensified disruptions in the financial markets could adversely affect our financial condition, operations at our hotels, our tenants, and their ability and willingness to renew our leases or pay rent to us, may restrict our ability to obtain new or replacement financing, would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.

Liquidity and Financing Transactions .

In April 2022, we amended the agreement governing our credit facility to among other things, obtain additional covenant relief, we repaid $200,000 of the outstanding balance, and reduced the size of the facility from $1,000,000 to $800,000.

Also in April 2022, we exercised a six month option to extend the maturity date to January 15, 2023 and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of the facility for an additional six-month period.

In October 2022, we exercised our remaining six month option to extend the maturity date to July 15, 2023.

On June 15, 2022, we redeemed at par all of our outstanding 5.00% senior notes due 2022 for a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest with cash on hand, including proceeds from the property dispositions discussed below.

As of August 3, 2022, we have $790,011 of cash or cash equivalents.

See Notes 4 and 7 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our asset sales and debt.

As of November 1, 2022, we have $114,000 of cash or cash equivalents.

Disposition Activities.

During the nine months ended September 30, 2022, we sold 61 hotels with 7,782 rooms for an aggregate sales price of $517,568, excluding closing costs, and 19 net lease properties with 129,548 square feet for an aggregate sales price of $14,169, excluding closing costs.

From October 1, 2022 through November 1, 2022, we sold one hotel with 120 rooms and a carrying value of $4,514 for a sales price of $6,025.

As of November 1, 2022, we have entered into agreements to sell four Sonesta branded hotels and 16 Marriott branded hotels with an aggregate of 2,701 rooms for an aggregate sales price of $162,470.

We continue to market one additional hotel with 219 rooms and three net lease properties with 8,575 square feet for sale.

We expect the sale of a majority of these hotels to be completed by the end of the first quarter of 2023.

For further discussion of our property sales and debt, see Notes 4, 5 and 7 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Management agreements and leases .

At June 30, 2022, we owned 247 hotels operated under six agreements.

At September 30, 2022, we owned 242 hotels operated under six agreements.

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

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

As of June 30, 2022, we owned 205 hotels that are managed by Sonesta and 11 of these hotels are expected to be sold.

As of September 30, 2022, we owned 200 hotels that are managed by Sonesta and six of these hotels are expected to be sold.

For further discussion of our hotel agreements with Sonesta, see Notes 4, 5 and 10 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Hotel Portfolio.

As of June 30, 2022, we owned 247 hotels.

In the three and six months ended June 30, 2022, the U.S.

As of September 30, 2022, we owned 242 hotels.

In the three and nine months ended September 30, 2022, the U.S.

hotel industry generally realized increases in average daily rate, or ADR, revenue per available room, or RevPAR, and occupancy compared to the corresponding 2021 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.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2022 2021 Change 2022 2021 Change

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

For the three and six months ended June 30, 2022 and 2021, our comparable results exclude three hotels that had suspended operations during part of the periods presented.

For the three and nine months ended September 30, 2022 and 2021, our comparable results exclude three hotels that had suspended operations during part of the periods presented.

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

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

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

2022 2021 Change 2022 2021 Change

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Net Lease Portfolio .

As of June 30, 2022, we owned 775 service-focused retail net lease properties with 13,406,568 square feet leased to 176 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $372,120.

Our net lease portfolio was 98.8% occupied as of June 30, 2022 with a weighted (by annual minimum rent) lease term of 10 years, operating under 145 brands in 21 distinct industries.

As of September 30, 2022, we owned 769 service-focused retail net lease properties with 13,412,371 square feet leased to 178 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $372,601.

Our net lease portfolio was 98.1% occupied as of September 30, 2022 with a weighted (by annual minimum rent) lease term of 8.8 years, operating under 136 brands in 21 distinct industries.

TA is our largest tenant.

As of June 30, 2022, we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of $246,110.

As of September 30, 2022, we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of $246,110.

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

Disposition Activities.

During the six months ended June 30, 2022, we sold 56 hotels with 7,272 rooms for an aggregate sales price of $487,868, excluding closing costs, and 13 net lease properties with 115,492 square feet for an aggregate sales price of $13,064, excluding closing costs.

From July 1, 2022 through August 3, 2022, we sold three hotels with 383 rooms and an aggregate carrying value of $17,952 for an aggregate sales price of $21,500, excluding closing costs, and four net lease properties with 10,216 square feet and an aggregate carrying value of $678 for an aggregate sales price of $700 excluding closing costs.

As of August 3, 2022, we have entered into agreements to sell four Sonesta branded hotels with an aggregate of 508 rooms for an aggregate sales price of $24,250 and two net lease properties with an aggregate of 3,840 square feet for an aggregate sales price of $325.We continue to market 20 additional hotels with 2,752 rooms for sale.

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

For further discussion of our property sales, see Note 4 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

For the Three Months Ended June 30,

Three Months Ended September 30, 2022 compared to the Three Months Ended September 30, 2021

For the Three Months Ended September 30,

Increase % Increase

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Hotel operating revenues $ 400,453 $ 338,375 $ 62,078 18.3 %

Rental income - hotels — 245 (245) (100.0) %

Rental income - net lease 96,793 95,556 1,237 1.3 %

Rental income 97,798 98,724 (926) (0.9) %

Total revenues 498,251 437,099 61,152 14.0 %

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Transaction related costs — 3,149 (3,149) (100.0) %

Loss on asset impairment, net 3,048 899 2,149 239.0 %

Loss on asset impairment, net 1,172 — 1,172 n/m

Total expenses 435,756 431,213 4,543 1.1 %

Other operating income:

Gain on sale of real estate, net 38,851 10,849 28,002 258.1 %

Unrealized gains (losses) on equity securities, net (10,059) 2,500 (12,559) (502.4) %

(Loss) gain on sale of real estate, net (164) 94 (258) (274.5) %

Unrealized gains on equity securities, net 23,056 24,348 (1,292) (5.3) %

Interest income 1,442 203 1,239 610.3 %

Interest expense (81,740) (92,458) (10,718) (11.6) %

Loss on early extinguishment of debt (791) — (791) n/m

Income (loss) before income taxes and equity in losses of an investee 9,630 (91,634) 101,264 (110.5) %

Income tax expense (473) (211) (262) 124.2 %

Equity in earnings (losses) of an investee 2,193 735 1,458 198.4 %

Income (loss) before income taxes and equity in earnings of an investee 5,089 (61,927) 67,016 (108.2) %

Income tax (expense) benefit (390) 55 (445) n/m

Equity in earnings of an investee 2,801 2,158 643 29.8 %

Net income (loss) $ 7,500 $ (59,714) $ 67,214 112.6 %

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Net income (loss) per common share (basic and diluted) $ 0.05 $ (0.36) $ 0.41 (113.9) %

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

Hotel operating revenues.

The increase in hotel operating revenues is primarily as a result of higher occupancies and average rates at certain of our hotels in the 2022 period and the greater negative impact of the COVID-19 pandemic on our hotels in the 2021 period ($153,363), partially offset by the sale of certain hotels since April 1, 2021 ($14,514).

The increase in hotel operating revenues is primarily a result of higher occupancies and average rates at certain of our hotels in the 2022 period and the greater negative impact of the COVID-19 pandemic on our hotels in the 2021 period ($101,468), partially offset by the sale of certain hotels since July 1, 2021 ($39,390).

Additional operating statistics of our hotels are included in the table on page 25.

Rental income - hotels.

The decrease in rental income – hotels is the result of the sale of five leased hotels in the 2021 period.

Rental income - net lease.

The increase in rental income - net lease is primarily the result of lower reserves for uncollectible rents for certain tenants in the 2022 period as compared to the 2021 period.

Rental income.

The decrease in rental income is primarily the result of the reduction of reserves for uncollectable amounts in the 2021 period as compared to an increase in reserves for uncollectable amounts in the 2022 period ($2,992), partially offset by increases in rental rates and percentage rent recognized at certain of our properties.

Hotel operating expenses.

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels resulting in an increase in controllable costs ($44,323), an increase in wages and benefits ($38,396), a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($5,306), and an increase in management fees ($5,289), partially offset by the sale of certain hotels since April 1, 2021 ($9,918) and a decrease in real estate taxes ($1,385).

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($34,168), an increase in controllable costs ($21,680), an increase in insurance ($3,157), an increase in management fees ($3,602) and other operating expenses ($2,678), partially offset by the sale of certain hotels since July 1, 2021 ($32,252).

Other operating expenses.

The decrease in other operating expenses is primarily the result of lower operating expenses at certain net lease properties and the sale of certain net lease properties since April 1, 2021.

The decrease in other operating expenses is primarily the result of lower operating expenses at certain net lease properties and the sale of certain net lease properties since July 1, 2021.

Depreciation and amortization - hotels.

The decrease in depreciation and amortization - hotels is primarily a result of the sale of certain hotels ($7,728), a decrease in depreciation for hotels classified as held for sale ($1,377), and certain of our depreciable assets becoming fully depreciated since April 1, 2021($3,711), partially offset by depreciation and amortization related to capital additions since April 1, 2021 ($2,112).

The decrease in depreciation and amortization - hotels is primarily a result of the sale of certain hotels and certain hotels classified as held for sale ($8,302) and certain of our depreciable assets becoming fully depreciated ($3,966) partially offset by depreciation and amortization related to capital additions since July 1, 2021 ($1,983).

Depreciation and amortization - net lease.

The decrease in depreciation and amortization - net lease is primarily a result of certain of our depreciable assets being fully depreciated since April 1, 2021 ($9,994) and the sale of certain net lease properties since April 1, 2021 ($459).

The decrease in depreciation and amortization - net lease is primarily a result of certain of our depreciable assets being fully depreciated since July 1, 2021 ($12,986) and the sale of certain net lease properties since July 1, 2021 ($622).

General and administrative.

The decrease in general and administrative costs is primarily due to a decrease in business management fees as a result of a decrease in our market capitalization ($1,438), partially offset by an increase in professional service expenses ($623).

The decrease in general and administrative costs is primarily due to a decrease in business management fees as a result of a decrease in our market capitalization ($2,398) and an increase in professional service expenses ($540).

Transaction related cos ts.

Transaction related costs for the three months ended June 30, 2022 are primarily costs related to our exploration of possible financing transactions.

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

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

Loss on asset impairment, net.

We recorded a $3,048 loss on asset impairment, net during the three months ended June 30, 2022 to reduce the carrying value of two hotels and four net lease properties to their estimated fair value less costs to sell.

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

Gain on sale of real estate, net.

We recorded a $38,851 net gain on sale of real estate during the three months ended June 30, 2022 in connection with the sale of 51 hotels and 11 net lease properties and a $10,849 net loss on sale of real estate during the three months ended June 30, 2021 in connection with the sale of six hotels and two net lease properties.

Unrealized gains (losses) on equity securities, net.

Unrealized gain (loss) on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of June 30, 2022 and 2021.

We recorded a loss on asset impairment of $1,172 to reduce the carrying value of three hotels and one net lease property to their estimated fair value less costs to sell during the three months ended September 30, 2022.

(Loss) gain on sale of real estate, net.

We recorded a $164 net loss on sale of real estate during the three months ended September 30, 2022 in connection with the sale of five hotels and six net lease properties.

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

Unrealized gains on equity securities, net.

Unrealized gains on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of September 30, 2022 and 2021.

Interest income.

The increase in interest income is primarily due to higher average cash balances and higher interest rates during the 2022 period.

The increase in interest income is primarily due to higher interest rates during the 2022 period.

Interest expense.

The decrease in interest expense is primarily due to lower average outstanding borrowings in the 2022 period, partially offset by higher average interest rates on our revolving credit facility.

Loss on early extinguishment of debt.

We recorded a $791 loss on early extinguishment of debt in the 2022 period related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our revolving credit facility and the repayment of $500,000 of unsecured senior notes.

Income tax expense.

The increase in income tax expense is primarily due to increases in state and foreign sourced income tax expenses during the 2022 period.

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.

Income tax (expense) benefit.

The change in income tax (expense) benefit is primarily due to increases in state and foreign sourced income tax expenses during the 2022 period.

Equity in earnings of an investee.

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

Net income (loss).

Our net income (loss) and net income (loss) per common share (basic and diluted) each changed in the 2022 period compared to the 2021 period primarily due to the revenue and expense changes discussed above.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

For the Six Months Ended June 30,

Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 2021

For the Nine Months Ended September 30,

Increase % Increase

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Hotel operating revenues $ 1,116,843 $ 787,463 $ 329,380 41.8 %

Rental income - hotels — 701 (701) (100.0) %

Rental income - net lease portfolio 193,151 187,317 5,834 3.1 %

Rental income 290,949 286,742 4,207 1.5 %

Total revenues 1,407,792 1,074,205 333,587 31.1 %

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Gain on sale of real estate, net 44,235 10,934 33,301 304.6 %

Unrealized losses on equity securities, net (20,319) (3,981) (16,338) 410.4 %

Unrealized gains on equity securities, net 2,737 20,367 (17,630) (86.6) %

Interest income 2,735 485 2,250 463.9 %

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Loss on early extinguishment of debt (791) — (791) n/m

Loss before income taxes and equity in losses of an investee (108,780) (282,928) 174,148 (61.6) %

Loss before income taxes and equity in earnings of an investee (103,691) (344,855) 241,164 (69.9) %

Income tax expense (1,558) (1,009) (549) 54.4 %

Equity in earnings (losses) of an investee 1,476 (2,108) 3,584 (170.0) %

Equity in earnings of an investee 4,277 50 4,227 n/m

Net loss $ (100,972) $ (345,814) $ 244,842 (70.8) %

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Net loss per common share (basic and diluted) $ (0.61) $ (2.10) $ 1.49 n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

Hotel operating revenues.

The increase in hotel operating revenues is primarily as a result of higher occupancies and average rates at certain of our hotels in the 2022 period and the greater negative impact of the COVID-19 pandemic on our hotels in the 2021 period ($273,873), partially offset by the sale of certain hotels since January 1, 2021 ($6,571).

The increase in hotel operating revenues is primarily a result of higher occupancies and average rates at certain of our hotels in the 2022 period and the greater negative impact of the COVID-19 pandemic on our hotels in the 2021 period ($373,209), partially offset by the sale of certain hotels since January 1, 2021 ($43,829).

Additional operating statistics of our hotels are included in the table on page 25.

Rental income - hotels.

The decrease in rental income – hotels is the result of the sale of five leased hotels in the 2021 period.

Rental income - net lease portfolio.

The increase in rental income - net lease is primarily the result of lower reserves for uncollectible rents for certain tenants in the 2022 period as compared to the 2021 period.

Rental income.

The increase in rental income is primarily the result of increases in rental rates and percentage rent recognized at certain of our properties in the 2022 period as compared to the 2021 period.

Hotel operating expenses.

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels resulting in an increase in controllable costs ($79,529), an increase in wages and benefits ($68,550), a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($15,698), an increase in management fees ($10,963) and an increase in property insurance costs ($9,362), partially offset by the sale of certain hotels since January 1, 2021 ($3,352) and a decrease in real estate tax expense ($3,749).

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($107,799), an increase in controllable costs ($87,336), a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($15,696), an increase in management fees ($14,005), an increase in property insurance costs ($12,062) and other operating expenses ($6,290), partially offset by the sale of certain hotels since January 1, 2021 ($33,154).

Other operating expenses.

The decrease in other operating expenses is primarily the result lower operating expenses at certain net lease properties and the sale of certain net lease properties since January 1, 2021.

The decrease in other operating expenses is primarily the result of lower operating expenses at certain net lease properties and the sale of certain net lease properties since January 1, 2021.

Depreciation and amortization - hotels.

The decrease in depreciation and amortization - hotels is primarily a result of the sale of certain hotels ($15,078), certain of our depreciable assets becoming fully depreciated since January 1, 2021 ($7,998) and a decrease in depreciation for hotels classified as held for sale ($2,358), partially offset by depreciation and amortization related to capital additions since January 1, 2021 ($2,767).

The decrease in depreciation and amortization - hotels is primarily a result of the sale of certain hotels and certain hotels classified as held for sale ($25,351) and certain of our depreciable assets becoming fully depreciated ($15,200), partially offset by depreciation and amortization related to capital additions since January 1, 2021 ($7,600).

Depreciation and amortization - net lease.

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General and administrative.

The decrease in general and administrative costs is primarily due to a decrease in business management fees as a result of a decrease in our market capitalization ($1,859), partially offset by an increase in other professional service expenses and franchise taxes ($490).

The decrease in general and administrative costs is primarily due to a decrease in business management fees as a result of a decrease in our market capitalization ($4,256) and an increase in other professional service expenses ($841).

Transaction related cos ts.

Transaction related costs for the six months ended June 30, 2022 are primarily costs related to exploration of possible financing transactions.

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

Transaction related costs for the nine months ended September 31, 2022 primarily consisted of costs related to our exploration of possible financing transactions.

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

Loss on asset impairment, net.

We recorded a $8,548 loss on asset impairment during the six months ended June 30, 2022 to reduce the carrying value of 25 hotels and four net lease properties to their estimated fair value less costs to sell.

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

We recorded a $9,720 loss on asset impairment during the nine months ended September 30, 2022 to reduce the carrying value of 25 hotels and four net lease properties to their estimated fair value less costs to sell.

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

Gain on sale of real estate, net.

We recorded a $44,399 net gain on sale of real estate in the 2022 period in connection with the sales of 56 hotels and 13 net lease properties and a $10,840 net gain on sale of real estate during the six months ended June 30, 2021 in connection with the sale of six hotels and three net lease properties.

Unrealized loss on equity securities, net.

Unrealized losses on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of June 30, 2022 and 2021.

We recorded a $44,235 net gain on sale of real estate during the nine months ended September 30, 2022 in connection with the sale of 61 hotels and 19 net lease properties.

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

Unrealized gains on equity securities, net.

Interest income.

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Interest expense.

The increase in interest expense is due to higher weighted average interest rates, partially offset by our repayment of certain debt in the 2022 period.

The decrease in interest expense is primarily due to lower average outstanding borrowings in the 2022 period, partially offset by higher average interest rates on our revolving credit facility.

Loss on early extinguishment of debt.

1 unchanged sentence

Income tax expense.

The increase in income tax expense is primarily due to an increase in our foreign sourced income tax expense during the 2022 period, partially offset by lower net state income tax expense.

Equity in earnings (losses) of an investee.

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

The increase in income tax expense is primarily due to an increase in our state income tax expense during the 2022 period, partially offset by lower net state income tax expense.

Equity in earnings of an investee.

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

Our net loss and net loss per common share (basic and diluted) each decreased in the 2022 period compared to the 2021 period primarily due to the revenue and expense changes discussed above.

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Our Managers and Tenants

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

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

As of June 30, 2022, all 247 of our hotels were managed by five hotel operating companies.

Our 775 net lease properties were leased to 176 tenants as of June 30, 2022.

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and on our hotel managers’ and tenants’ businesses, and the market practices that arose or increased in response to the pandemic may to have adverse impacts on those and industries and businesses.

As a result, the ability or willingness of our hotel managers and tenants to pay us our owner’s priority returns and rents may decline, the likelihood that they will default in paying us returns and rent may increase and the value of those properties may decline.

We continue to carefully monitor the effects of the COVID-19 pandemic and economic and market conditions on our operators and our other stakeholders.

As of September 30, 2022, all 242 of our hotels were managed by five hotel operating companies.

Our 769 net lease properties were leased to 178 tenants as of September 30, 2022.

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 owner’s priority returns and rents, from their separate resources.

As of June 30, 2022, our hotel managers included Sonesta (205 hotels), Hyatt (17 hotels), Radisson (eight hotels), Marriott (16 hotels) and IHG (one hotel).

As of September 30, 2022, our hotel managers included Sonesta (200 hotels), Hyatt (17 hotels), Radisson (eight hotels), Marriott (16 hotels) and IHG (one hotel).

TA is our largest tenant (179 travel centers).

As of June 30, 2022, we owned 205 hotels that are managed by Sonesta and 11 of these hotels are Sale Hotels.

As of September 30, 2022, we owned 200 hotels that are managed by Sonesta and six of these hotels are Sale Hotels.

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

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Among other things, the amendments to the agreements between us and Sonesta for the 194 Retained Hotels are as follows:

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

• The term for the Retained Hotels expire 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.

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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 return for all the sale hotels is $17,519 as of June 30, 2022.

The total owner’s priority return for all the remaining Sale Hotels was $11,819 as of September 30, 2022.

See Notes 5 and 10 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on these agreements.

We reduced reserves for uncollectible amounts by $160 and $667 during the three and six months ended June 30, 2022, respectively, and recorded reserves for uncollectible amounts of $1,176 and $5,960 during the three and six months ended June 30, 2021, respectively.

We had reserves for uncollectible rents of $11,259 and $15,519 as of June 30, 2022 and December 31, 2021, respectively, included in other assets in our condensed consolidated balance sheets.

As of June 30, 2022, we had $5,492 of deferred rents outstanding related to five tenants who represented approximately 3.7% of our annualized rental income of our net lease retail portfolio as of June 30, 2022, to which we granted rent relief during the COVID-19 pandemic.

We recorded reserves for uncollectable amounts of $352 for the three months ended September 30, 2022 and reduced our reserves for uncollectable amounts by $315 for the nine months ended September 30, 2022 based on our assessment of collectability and cash received from certain tenants.

We reduced our reserves for uncollectable amounts by $5,373 for the three months ended September 30, 2021 and recorded reserves for uncollectable amounts of $588 for the nine months ended September 30, 2021 based on our assessment of collectability and cash received from certain tenants.

We had reserves for uncollectable rents of $7,755 and $15,519 as of September 30, 2022 and December 31, 2021, respectively, included in other assets in our condensed consolidated balance sheets.

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

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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 2.80x and 2.29x as of June 30, 2022 and 2021, respectively.

Our net lease properties generated coverage of 2.88x and 2.37x as of September 30, 2022 and 2021, respectively.

Our Operating Liquidity and Capital Resources

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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 decline in operating cash flow experienced since the start of the COVID-19 pandemic, 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 owner’s priority returns and rents to us when due as a result of current or future economic conditions, including if the U.S.

enters an economic recession, and, as a result, our revenue, cash flow, and net income could decline.

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

economic activity and lodging demand beginning in March 2020, we have taken steps to preserve liquidity by drawing down the remaining capacity on our revolving credit facility, maintaining our quarterly distribution to our shareholders at $0.01 per share, by selectively making investments and 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, repayment of debt, fund capital expenditures, and to pay distributions to our shareholders.

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.

We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter.

However, as a result of economic conditions, including if the U.S.

enters an economic recession, or otherwise, our managers and tenants may become unable or unwilling to pay owner’s priority returns and rents to us when due, and, as a result, our cash flows and net income would decline and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.

Also, our revolving credit facility matures on July 15, 2023 and we have no remaining extension options.

Although we currently expect to enter into a new facility prior to its maturity or obtain alternative financing, there can be no assurance we will be successful in doing so.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at the beginning of the period $ 947,418 $ 91,456

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Cash and cash equivalents and restricted cash at the end of the period $ 78,137 $ 914,189

The change from cash flows used in operating activities in the 2021 period to cash flows provided by operating activities in the 2022 period is primarily due to higher returns earned from our hotel and net lease portfolios, partially offset by higher interest expense in the 2022 period.

The change from cash flows used in investing activities in the 2021 period to cash flows provided by investing activities in the 2022 period is primarily due to an increase in real estate dispositions in the 2022 period, a decrease in real estate improvements and hotel managers’ purchases with restricted cash, partially offset by an increase in investments in Sonesta in 2022.

The change from cash flows provided by financing activities in the 2021 period to cash flows used in financing activities for the 2022 period is primarily due to the repayment of debt in the 2022 period compared to a drawdown of the then remaining capacity on our revolving credit facility in the 2021 period.

The increase in cash provided by operating activities for the 2022 period compared to the 2021 period is primarily due to higher returns and rents earned from our hotel and net lease portfolios and lower interest expense in the 2022 period.

The change from cash flows used in investing activities in the 2021 period to cash flows provided by investing activities in the 2022 period is primarily due to an increase in real estate dispositions in the 2022 period and a decrease in hotel managers’ purchases with restricted cash, partially offset by an increase in investments in Sonesta in the 2022 period.

The change from cash flows provided by financing activities in the 2021 period to cash flows used in financing activities for the 2022 period is primarily due to our repayment of debt in the 2022 period compared to a drawdown of the then remaining capacity on our revolving credit facility in the 2021 period.

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

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

During the six months ended June 30, 2022, we funded $45,661 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $100,000 for capital improvements to certain hotels during the last six months of 2022 using cash on hand.

During the nine months ended September 30, 2022, we funded $68,502 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $45,000 for capital improvements to certain hotels during the last three months of 2022 using cash on hand.

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

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

During the six months ended June 30, 2022, our hotel managers and tenants deposited $3,834 to these accounts and spent $1,860 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of June 30, 2022, there was $4,316 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

During the nine months ended September 30, 2022, our hotel managers and tenants deposited $6,533 to these accounts and spent $3,436 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of September 30, 2022, there was $10,891 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

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

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

We funded $3,930 of capital improvements to properties under these lease provisions during the six months ended June 30, 2022.

We funded $5,450 of capital improvements to properties under these lease provisions during the nine months ended September 30, 2022.

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

As of June 30, 2022, we had $2,792 of unspent leasing-related obligations related to certain net lease tenants.

From July 1, 2022 through August 3, 2022, we sold 16 hotels with 2,021 rooms for an aggregate sales price of $169,469, excluding closing costs, and four net lease properties with 38,578 square feet for an aggregate sales price of $3,469, excluding closing costs.

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

As of September 30, 2022, we had $2,049 of unspent leasing-related obligations related to certain net lease tenants.

From October 1, 2022 through November 1, 2022, we sold one hotel with 120 rooms for an aggregate sales price of $6,025, excluding closing costs.

As of November 1, 2022, we have entered into agreements to sell four Sonesta branded hotels and 16 Marriott branded hotels with an aggregate of 2,701 rooms for an aggregate sales price of $162,470.

We continue to market one additional hotel with 219 rooms for sale and three net lease properties with 8,575 square feet for sale.

We expect the sale of a majority of these hotels to be completed by the end of the first quarter of 2023.

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

In April 2022 and June 2022, we funded $25,000 and $20,470, respectively, of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, NY using cash on hand.

During the six months ended June 30, 2022, we declared and paid regular quarterly distributions to common shareholders using cash on hand as follows:

During the nine months ended September 30, 2022, we funded $45,470 of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, NY using cash on hand.

During the nine months ended September 30, 2022, we declared and paid regular quarterly distributions to common shareholders using cash on hand as follows:

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

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April 14, 2022 April 25, 2022 May 19, 2022 0.01 1,651

July 14, 2022 July 25, 2022 August 18, 2022 0.01 1,651

$ 0.03 $ 4,953

On July 14, 2022, we declared a regular quarterly distribution to common shareholders of record as of July 25, 2022 of $0.01 per share, or $1,651.

We expect to pay this amount on or about August 18, 2022 using cash on hand.

On October 13, 2022, we declared a regular quarterly distribution to common shareholders of record as of October 24, 2022 of $0.20 per share, or $33,091.

We expect to pay this amount on or about November 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 revolving credit facility which is governed by the credit agreement.

As of June 30, 2022 the maturity date of our revolving credit facility was January 15, 2023, and, subject to the payment of an extension fee and meeting certain other conditions as noted below, we have the option to extend the maturity date of this facility by one additional six-month period.

We are required to pay interest at the rate of LIBOR plus a premium, which was 250 basis points per annum, subject to a LIBOR floor of 0.50% at June 30, 2022, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum at June 30, 2022.

As of September 30, 2022 the maturity date of our revolving credit facility was January 15, 2023, and, subject to the payment of an extension fee and meeting certain other conditions as noted below, we had the option to extend the maturity date of this facility by one additional six-month period.

We are required to pay interest at the rate of LIBOR plus a premium, which was 250 basis points per annum, subject to a LIBOR floor of 0.50% at September 30, 2022, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum at September 30, 2022.

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

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

As of June 30, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 3.69%.

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

As of June 30, 2022, we had $800,000 of borrowings outstanding and were fully drawn under our revolving credit facility.

As of September 30, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 5.26%.

We and our lenders amended the credit agreement in 2020.

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• we are required to maintain minimum liquidity of at least $150,000.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $1,578,603 as of June 30, 2022 to secure our obligations under the credit agreement.

Our term debt maturities (other than our revolving credit facility) as of June 30, 2022 were as follows:

On October 4, 2022, we further amended our credit agreement and exercised our remaining option to extend the maturity date of our revolving credit facility by six months to July 15, 2023.

Pursuant to the amendment:

• we agreed to maintain minimum liquidity of $600,000 until we repay or refinance our $500,000 of 4.5% senior notes due in June 2023 and maintain at least $150,000 of liquidity thereafter;

• restrictions on paying common dividends and issuing secured debt previously agreed to during the existing waiver period were removed, subject to certain conditions.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $1,573,608 as of September 30, 2022 to secure our obligations under the credit agreement.

As of September 30, 2022, we had $95,000 of borrowings outstanding under our revolving credit facility.

Our term debt maturities (other than our revolving credit facility) as of September 30, 2022 were as follows:

Year Maturity

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

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the duration and severity of the COVID-19 pandemic and its impact on economic conditions, as well as the impacts of the current, and possibly future, inflationary conditions, increasing interest rates and a possible recession are uncertain and may have various negative consequences on us and our operations, including a decline in financing availability and increased costs for financing.

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the duration and severity of the COVID-19 pandemic, and the market practices that arose or increase in response to the pandemic, and its impact on economic conditions, as well as the impacts of the current, and possibly future, inflationary conditions, increasing interest rates and a possible recession are uncertain and may have various negative consequences on us and our operations, including a decline in financing availability and increased costs for financing.

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

Debt Covenants

Our debt obligations at June 30, 2022 consisted of outstanding borrowings under our $800,000 revolving credit facility and $5,700,000 of publicly issued term debt.

Our debt obligations at September 30, 2022 consisted of $95,000 of outstanding borrowings under our revolving credit facility and $5,700,000 of publicly issued term debt.

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

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

As of June 30, 2022, 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 noted above.

As of September 30, 2022, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement.

Senior Notes Indenture Covenants

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of June 30, 2022:

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of September 30, 2022:

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 161.0% Minimum 150%

As of June 30, 2022, we have met the minimum financial covenant levels under our senior notes indentures, which reinstates our ability to incur additional debt so long as we maintain these covenant levels and subject to the provisions of our credit facility and senior notes indentures.

Because the margin by which we satisfied the minimum required consolidated income available for debt service to debt service ratio as of quarter end was relatively small, our current ability to incur additional debt remains limited.

Our ability to incur additional debt is subject to meeting the required covenant levels and subject to the provisions of our credit facility and senior notes indentures.

Because the margin by which we satisfied the minimum required consolidated income available for debt service to debt service ratio as of the September 30, 2022 quarter end was relatively small, our current ability to incur additional debt remains limited.

Acceleration and Cross-Default

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Our remaining $4,450,000 of senior unsecured notes do not have the benefit of any guarantees.

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

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

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

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

As of June 30, 2022 As of December 31, 2021

As of September 30, 2022 As of December 31, 2021

Real estate properties, net (1)

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Other liabilities 403,912 430,267

Six Months Ended

June 30, 2022

(1) Real estate properties, net as of June 30, 2022 includes $194,819 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

Nine Months Ended

September 30, 2022

(1) Real estate properties, net as of September 30, 2022 includes $193,201 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

(2) Intercompany balances represent receivables from non-guarantor subsidiaries.

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

As of June 30, 2022, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 145 brands across 21 industries.

As of September 30, 2022, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 147 brands across 22 industries.

Hotel Portfolio

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of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

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Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

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

For the three and six months ended June 30, 2022 and 2021, our comparable results excluded three hotels that had suspended operations during part of the periods presented.

For the three and nine months ended September 30, 2022 and 2021, our comparable results excluded three hotels that had suspended operations during part of the periods presented.

All Hotels* No.

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of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

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Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

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All Hotels Total/Average 242 40,563 61.9 % 51.2 % 10.7 Pts $ 134.19 $ 107.78 24.5 % $ 83.06 $ 55.18 50.5 %

* Results of all hotels owned as of June 30, 2022.

* Results of all hotels owned as of September 30, 2022.

Excludes the results of hotels sold during the periods presented.

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Net Lease Portfolio

As of June 30, 2022, our net lease properties were 98.8% occupied and we had 17 properties available for lease.

During the six months ended June 30, 2022, we entered into lease renewals for 103,815 rentable square feet at weighted (by rentable square feet) average rents that were 0.71% higher than the prior rents for the same space.

As of September 30, 2022, our net lease properties were 98.1% occupied and we had 21 properties available for lease.

During the nine months ended September 30, 2022, we entered into lease renewals for 142,071 rentable square feet at weighted (by rentable square feet) average rents that were 3.47% higher than the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 6.2 years.

We also entered into new leases for 117,795 rentable square feet at weighted (by rentable square feet) average rents that were 14.5% lower than the prior rents for the same space.

We also entered into new leases for 140,492 rentable square feet at weighted (by rentable square feet) average rents that were 21.2% higher than the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 10.1 years.

As of June 30, 2022, our net lease tenants operated across more than 145 brands.

As of September 30, 2022, our net lease tenants operated across more than 136 brands.

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

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Petro Stopping Centers 45 1,021,226 20.0 % 78,099 21.0 % 2.33 x

AMC Theatres 11 102,580 2.0 % 7,305 2.0 % 1.01 x

The Great Escape 14 98,242 1.9 % 7,711 2.1 % 7.21x

Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 1.81x

AMC Theatres 10 86,727 1.7 % 6,852 1.8 % 1.45x

Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 5.90x

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(4) Other includes 127 distinct brands with an average investment of $9,741 and average annual minimum rent of $668.

As of June 30, 2022, our top 10 net lease tenants based on annualized minimum rent are listed below.

As of September 30, 2022, our top 10 net lease tenants based on annualized minimum rent are listed below.

Tenant Brand Affiliation No.

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TravelCenters of America TravelCenters of America / Petro Stopping Centers 179 $ 3,310,415 64.8 % $ 246,110 66.1 % 2.54x (4)

American Multi-Cinema, Inc.

AMC Theatres 11 102,580 2.0 % 7,305 2.0 % 1.01x

Universal Pool Co., Inc.

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Healthy Way of Life II, LLC Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 1.81x

American Multi-Cinema, Inc.

AMC Theatres 10 86,727 1.7 % 6,852 1.8 % 1.01x

Styx Acquisition, LLC Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 5.90x

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(5) Other includes 168 tenants with an average investment of $7,136 and average annual minimum rent of $486.

As of June 30, 2022, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

As of September 30, 2022, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

of Buildings Investment (1)

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Restaurants-Casual Dining 53 192,195 3.8% 11,923 3.2 % 2.46 x

Movie Theaters 22 190,725 3.7% 14,266 3.8 % 0.78x

Health and Fitness 13 186,364 3.6% 10,991 2.9 % 1.88 x

Movie Theaters 21 178,572 3.5% 13,813 3.7 % 0.94 x

Grocery Stores 19 129,152 2.5% 9,191 2.5 % 5.59 x

Home Goods and Leisure 20 120,552 2.4% 9,103 2.4 % 6.56x

Medical, Dental Office 72 121,974 2.4% 9,931 2.7 % 3.45 x

Automotive Equipment & Services 64 98,689 1.9% 7,178 1.9 % 3.17 x

Entertainment 4 61,436 1.2% 4,292 1.2 % 2.56x

Home Goods and Leisure 14 98,242 1.9% 7,711 2.1 % 7.21 x

Automotive Dealers 8 62,550 1.2% 4,956 1.3 % 5.98 x

General Merchandise Stores 5 56,321 1.1% 3,892 1.0 % 3.12x

Entertainment 4 61,436 1.2% 4,301 1.1 % 2.54 x

Educational Services 9 55,319 1.1% 4,451 1.2 % 1.41 x

Miscellaneous Manufacturing 6 29,837 0.6% 2,228 0.6 % 17.27x

General Merchandise Stores 4 55,112 1.1% 3,850 1.0 % 2.87 x

Vacant 21 43,821 0.9% — — % — x

Other 12 39,695 0.8% 4,719 1.3 % 4.47 x

Building Materials 27 30,342 0.6% 2,575 0.7 % 7.31 x

Miscellaneous Manufacturing 6 30,037 0.6% 2,240 0.6 % 12.60 x

Car Washes 5 28,658 0.6% 2,170 0.6 % 3.41 x

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Dollar Stores 3 2,971 0.1% 189 0.1 % 2.65 x

Other 5 27,245 0.5% 3,987 1.0 % 4.49x

Vacant 17 21,916 0.4% — — % — x

Total 769 $ 5,110,620 100.0% $ 372,601 100.0 % 2.88 x

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

As of June 30, 2022, lease expirations at our net lease properties by year are as follows:

As of September 30, 2022, lease expirations at our net lease properties by year are as follows:

Square Feet Annualized Minimum Rent Expiring Percent of Total Annualized Minimum Rent Expiring Cumulative % of Total Minimum Rent Expiring

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

As of June 30, 2022, shown below is the list of our top ten states based on annualized minimum rent where our net lease properties were located.

As of September 30, 2022, shown below is the list of our top ten states based on annualized minimum rent where our net lease properties were located.

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

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Texas 1,176,854 $ 32,168 8.6%

Ohio 1,302,273 26,276 7.1%

Illinois 1,010,047 26,581 7.1%

Ohio 1,302,273 26,105 7.0%

California 399,045 23,902 6.4%

Georgia 597,248 20,312 5.5%

Florida 538,130 16,153 4.3%

Arizona 476,651 17,552 4.7%

Indiana 637,239 16,421 4.4%

Florida 538,130 16,183 4.3%

Pennsylvania 543,959 15,575 4.2%

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Actual results could differ from those estimates.

Significant estimates in the condensed consolidated financial statements include consolidation of VIE’s, purchase price allocations, the determination of useful lives of fixed assets, classification of leases, and the assessment of the carrying values and impairment of real estate intangible assets and equity investments.

Significant estimates in the condensed consolidated financial statements include consolidation of VIEs, purchase price allocations, the determination of useful lives of fixed assets, classification of leases, and the assessment of the carrying values and impairment of real estate intangible assets and equity investments.

A discussion of our critical accounting estimates is included in our 2021 Annual Report.

13 unchanged sentences

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

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 2022 and 2021 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended June 30, For the Six Months Ended June 30,

Our calculations of FFO and Normalized FFO for the three and nine months ended September 30, 2022 and 2021 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

3 unchanged sentences

1,172 — 9,720 2,110

Gain on sale of real estate, net (2)

Loss (gain) on sale of real estate, net (2)

164 (94) (44,235) (10,934)

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

Unrealized gains on equity securities, net (3)

(23,056) (24,348) (2,737) (20,367)

14 unchanged sentences

Normalized FFO $ 0.54 $ 0.27 $ 1.06 $ 0.17

$ 0.54 $ 0.16 $ 0.52 $ (0.10)

Distributions declared per share $ 0.01 $ 0.01 $ 0.02 $ 0.03

(1) We recorded a loss on asset impairment of $3,048 to reduce the carrying value of two hotels and four net lease properties to their estimated fair value less costs to sell during the three months ended June 30, 2022, a loss on asset impairment of $899 to reduce the fair value of three net lease properties to their estimated fair value less costs to sell during the three months ended June 30, 2021, a loss on asset impairment of $8,548 to reduce the carrying value of 25 hotels and four net lease properties to their estimated fair value less costs to sell during the six months ended June 30, 2022 and a loss on asset impairment of $2,110 during the six months ended June 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell.

(2) We recorded a $38,851 net gain on sale of real estate during the three months ended June 30, 2022 in connection with the sale of 52 hotels and 11 net lease properties, a $10,849 net gain on sale of real estate during the three months ended June 30, 2021 in connection with the sale of six hotels and two net lease properties, a $44,399 gain on sale of real estate during the six months ended June 30, 2022 in connection with the sale of 56 hotels and 13 net lease properties, and a $10,840 net gain on sale of real estate during the six months ended June 30, 2021 in connection with the sale of six hotels and three net lease properties.

(1) We recorded a loss on asset impairment of $1,172 to reduce the carrying value of three hotels and one net lease property to their estimated fair value less costs to sell during the three months ended September 30, 2022.

We recorded a loss on asset impairment of $9,720 to reduce the carrying value of 28 hotels and five net lease properties to their estimated fair value less costs to sell during the nine months ended September 30, 2022.

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

(2) We recorded a $164 net loss on sale of real estate during the three months ended September 30, 2022 in connection with the sale of five hotels and six net lease properties.

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

We recorded a $44,235 net gain on sale of real estate during the nine months ended September 30, 2022 in connection with the sale of 61 hotels and 19 net lease properties.

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

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

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

(5) Transaction related costs for the three and six months ended June 30, 2022, $743 and $1,920, respectively, primarily consisted of legal and other professional services costs related to our hotel rebrandings.

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

Transaction related costs for the three months ended March 31, 2021 includes $19,634 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the period.

(6) We recorded a $791 loss on extinguishment of debt during the three months ended June 30, 2022 related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our revolving credit facility and the repayment of $500,000 of unsecured senior notes.

(5) Transaction related costs for the nine months ended September 30, 2022 of $1,920 primarily consisted of costs related to our exploration of possible financing transactions.

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

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

(6) We recorded a $791 loss on extinguishment of debt during the nine months ended September 30, 2022 related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our revolving credit facility and the repayment of $500,000 of unsecured senior notes.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis