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Item 1. Business

2023-02-28 compared with 2022-02-24 · 139 added, 143 removed, 818 unchanged (26% of the section changed)

We are a real estate investment trust, or REIT, formed in 1995 under the laws of the State of Maryland.

As of December 31, 2021, we owned 303 hotels with 48,346 rooms or suites located in 38 states, Washington D.C., Ontario, Canada and San Juan, Puerto Rico and 788 service-oriented retail properties with 13,522,060 square feet located in 42 states.

We are a REIT formed in 1995 under the laws of the State of Maryland.

As of December 31, 2022, we owned 238 hotels with 40,053 rooms or suites located in 36 states, the District of Columbia, Ontario, Canada and San Juan, Puerto Rico and 765 service-oriented retail properties with 13,374,325 square feet located in 42 states.

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

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

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

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

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

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

Impact of COVID-19

Since March 2020, the lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the COVID-19 global pandemic, along with government mandates intended to contain and mitigate the spread of COVID-19 and market reactions to the pandemic.

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

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

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

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

We also currently expect the recovery of the U.S.

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

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

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

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

Hotel Portfolio

As of December 31, 2021, we owned 303 hotels with 48,346 rooms or suites located in 38 states, Washington D.C., Ontario, Canada and Puerto Rico.

As of December 31, 2022, we owned 238 hotels with 40,053 rooms or suites located in 36 states, the District of Columbia, Ontario, Canada and Puerto Rico.

We believe the scale, geographic diversity, strategic locations and the variety of service levels of our hotels gives us a competitive advantage.

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Royal Sonesta Hotels® Sonesta Full Service Upper Upscale 17 5,663 $ 1,860,539

Sonesta Hotels & Resorts® Sonesta Full Service Upscale 23 7,368 1,178,048

Sonesta ES Suites® Sonesta Extended Stay Upper Midscale 60 7,643 1,083,910

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

Sonesta Select® Sonesta Select Service Upscale 45 6,579 682,874

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

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

(2) Represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from reserves established for the regular refurbishment of our hotels, or FF&E, reserves funded from hotel operations that do not result in increases in our owner’s priority returns or rents.

Net Lease Portfolio

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Brand Industry No.

of Buildings Square Feet Investment (in 000s) (1)

of Properties Square Feet Investment (in 000s) (1)

TravelCenters of America Travel Centers 133 3,643,581 $ 2,289,189

Petro Stopping Centers Travel Centers 44 1,445,004 1,021,226

AMC Theatres Movie Theaters 11 575,967 102,580

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

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

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

AMC Theatres Movie Theaters 9 442,240 82,488

Buehler's Fresh Foods Grocery Stores 5 502,727 76,469

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

Regal Cinemas Movie Theaters 6 266,546 44,476

Pizza Hut Restaurants-Quick Service 40 167,366 45,285

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

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

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

America's Auto Auction Automotive Dealers 6 72,338 38,314

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

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

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

B&B Theatres Movie Theaters 4 261,300 37,619

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

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

Regal Cinemas Movie Theaters 5 223,846 34,953

Burger King Restaurants-Quick Service 21 68,710 34,289

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Arby's Restaurants-Quick Service 19 57,868 29,234

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

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

Mister Car Wash Car Washes 5 41,456 28,658

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

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

Church's Chicken Restaurants-Quick Service 32 43,399 26,326

Various 264 4,215,674 733,464

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

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

(2) Consists of 113 distinct brands with an average investment of $2,778 per property.

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

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• Long Terms.

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

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

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

The weighted average term remaining for our hotel agreements (weighted by our investments as of December 31, 2022) is 13.9 years, without giving effect to any renewal options our managers may have.

• Pooled Agreements.

Most of our hotel properties are subject to portfolio agreements.

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

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

• All or None Renewals.

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

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

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

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

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• Termination Rights.

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

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

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

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

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

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

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

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

On February 15, 2023, we and certain of our subsidiaries entered into a consent and amendment agreement, or the Consent Agreement, with TA and its subsidiary, TA Operating LLC, or together, the TCA Parties, and BP Products North America Inc., or BP, pursuant to which we and our applicable subsidiaries:

(1) consented to TA’s entering into an agreement and plan of merger, or the Merger Agreement, with BP and its merger subsidiary, pursuant to which BP will acquire TA in a merger transaction, or the Merger, for cash consideration of $86.00 per share of the outstanding shares of common stock, par value $0.001 per share, of TA, or the TA common shares, and to the consummation of the Merger and the other transactions contemplated by the Merger Agreement, or collectively, the BP Acquisition;

(2) agreed to amend and restate our subsidiaries’ existing lease and guaranty agreements with the applicable TCA Parties, effective at the time of the Merger;

and (3) agreed to sell to TA certain tradenames and trademarks associated with TA’s business that we or our applicable subsidiaries own at their current book value of $89.4 million, effective at the time of the Merger.

Pursuant to the amended and restated lease agreements to be entered into at the effective time of the Merger, or the A&R Leases, for 176 of our travel center properties, the aggregate annual minimum rent due to our applicable subsidiaries will be $254.0 million, with annual 2% increases throughout the initial term and any renewal terms of the A&R Leases, and there will be no percentage rent requirement.

The A&R Leases will each have an initial term of 10 years, with five 10-year extension options, and TA Operating LLC will prepay $188.0 million of rent under the A&R Leases at the effective time of the Merger and will receive monthly rent credits totaling $25.0 million per year over the 10-year initial term of the A&R Leases.

In addition, TA Operating LLC will have a right of first offer with respect to certain potential sales of travel center properties included in the A&R Leases.

Pursuant to the amended and restated guaranty amendments to be entered into at the effective time of the Merger, or the A&R Guarantees, BP Corporation North America Inc.

will guarantee payment under each of the A&R Leases.

BP Corporation North America Inc.’s obligations under the A&R Guarantees will be limited by an initial aggregate cap of approximately $3.04 billion.

We currently own 1,184,797 TA common shares, which represent approximately 7.8% of TA’s outstanding common shares and which are valued at approximately $101.9 million based on the cash consideration for the Merger.

In connection with the Merger Agreement, we entered into a voting agreement, or the Voting Agreement, with BP, pursuant to which, among other things, we agreed to vote all of our TA common shares in favor of the BP Acquisition and against any alternative acquisition proposal, including any superior proposal, as defined.

We also agreed not to sell or transfer our TA common shares while the Voting Agreement remains in effect.

Our obligations under the Voting Agreement terminate upon the earliest to occur of the effective time of the Merger, the valid termination of the Merger Agreement or the effective date of a written agreement by us and BP to terminate the Voting Agreement.

We expect to receive approximately $379.3 million in total cash for the value of our TA common shares, the TA tradenames and trademarks and the prepaid rent under the A&R Leases upon completion of the BP Acquisition.

The Merger is subject to various customary conditions to closing, including the approval of TA stockholders owning a majority of the TA common shares outstanding, as well as regulatory approvals.

The parties currently expect that the BP Acquisition will be completed by mid-year 2023.

Investment and Operating Policies

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invest in high quality properties operated by qualified operating companies;

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

use moderate debt leverage to fund additional investments which increase cash flows from operations;

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

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

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

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

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

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We or our tenants have entered into arrangements for operation of our properties.

Under the U.S.

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

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

As of December 31, 2022, all of our hotels were leased to our TRSs and managed by third parties.

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We intend to pursue growth through the acquisition of additional properties.

however, we are currently restricted under our credit agreement from making acquisitions.

Generally, we prefer to purchase multiple properties in one transaction or individual properties that can be added to a pre-existing portfolio agreement because we believe a single management or lease agreement, cross default covenants and all or none renewal rights for multiple properties in diverse locations enhance the credit characteristics and the security of our investments.

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• The tax and regulatory circumstances of the market area in which the property is located;

• The availability of a qualified manager or lessee;

• The financial strength of the proposed manager or lessee;

• The availability of a qualified manager or tenant;

• The financial strength of the proposed manager or tenant;

• The property’s design, construction quality, physical condition and age and expected capital expenditures that may be needed to maintain the property or to enhance its operation;

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In determining the competitive position of a property, we examine the proximity and convenience of the property to its expected customer base, the number and characteristics of competitive properties within the property’s market area and the existence of barriers to entry for competitive properties within that market, including site availability and zoning restrictions.

While we have historically focused on the acquisition of upscale limited service, extended stay and full service hotel properties, full service travel centers and necessity based retail properties, we consider acquisitions in all segments of the hospitality and necessity based retail industries.

We expect most of our acquisition efforts will focus on hotel and net lease based properties;

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

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

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

We owned 34.0% of the outstanding common stock of Sonesta and 7.8% of the outstanding common stock of TA as of December 31, 2022.

As disclosed elsewhere in this Annual Report on Form 10-K, in connection with the BP Acquisition, we entered into the Voting Agreement, pursuant to which, among other things, we agreed to vote all of our TA common shares in favor of the BP Acquisition and not to sell or transfer our TA common shares while the Voting Agreement remains in effect.

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

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

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

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

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

During 2022, we sold 65 hotels with 8,296 rooms for an aggregate sales price of $543.4 million and 21 net lease properties with 138,638 square feet for an aggregate sales price of $16.4 million.

As of December 31, 2022, we had 18 hotels and four net lease properties with an aggregate carrying value of $111.6 million classified as held for sale.

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

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We may also place new mortgages on our existing properties as a means of financing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our $800 million revolving credit facility, our unsecured senior notes indentures and their supplements and our secured borrowings contain financial covenants which, among other things, restrict our ability to incur additional indebtedness and require us to maintain certain financial ratios.

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

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Other Information

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

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

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

and an officer and employee of RMR LLC.

Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR LLC.

Our day to day operations are conducted by RMR LLC.

RMR LLC originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us.

RMR LLC has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR LLC is an alternative asset management company that is focused on commercial real estate and related businesses.

RMR LLC or its subsidiaries also acts as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR LLC are:

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

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

and an officer and employee of RMR.

Murray, our other Managing Trustee and our former President and Chief Executive Officer, was appointed the president and chief executive officer of Sonesta, effective April 1, 2022.

Murray also serves as an officer and employee of RMR.

Our day to day operations are conducted by RMR.

RMR originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us.

RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR is an alternative asset management company that is focused on commercial real estate and related businesses.

RMR or its subsidiaries also acts as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR are:

Adam Portnoy, President and Chief Executive Officer;

Clark, Executive Vice President, General Counsel and Secretary;

Clark, Executive Vice

President, General Counsel and Secretary;

Francis, Executive Vice President;

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Pertchik, Executive Vice President.

Our Chief Financial Officer and Treasurer, Brian E.

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

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

Our President and Chief Investment Officer, Todd Hargreaves, and our Chief Financial Officer and Treasurer, Brian E.

Donley, are Senior Vice Presidents of RMR.

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

Murray and Ms.

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We have no employees.

Services which would otherwise be provided to us by employees are provided by RMR LLC and by our Managing Trustees and officers.

As of December 31, 2021, RMR LLC has approximately 600 full time employees in its headquarters and regional offices located throughout the United States.

Services which would otherwise be provided to us by employees are provided by RMR and by our Managing Trustees and officers.

As of December 31, 2022 , RMR has approximately 600 full time employees in its headquarters and regional offices located throughout the United States.

The hotel industry is highly competitive.

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If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, our tenants may not renew their leases, we might not enter into new leases with prospective tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when their leases expire.

Our tenants may also face competition from on-line retailers or service providers, which may in turn negatively impact their ability to pay rents due to us.

Our tenants may also face competition from online retailers or service providers, which may in turn negatively impact their ability to pay rents due to us.

We have a large concentration of net lease properties in the travel center industry which is highly competitive.

Although there are approximately 6,300 travel centers and truck stops in the U.S., we believe that large, long haul trucking fleets tend to purchase the large majority of their fuel at the travel centers and truck stops that are located at or near interstate highway exits.

We believe that large, long haul trucking fleets tend to purchase the large majority of their fuel at the travel centers and truck stops that are located at or near interstate highway exits.

Long haul truck drivers can obtain fuel and non-fuel products and services from a variety of sources, including regional full service travel centers and fuel only truck stop chains, independently owned and operated truck stops, some large gas stations and trucking company terminals that provide fuel and services to their own trucking fleets.

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Sustainability, Environmental and Climate Change Matters.

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

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

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

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

website at www.rmrgroup.com/corporate-sustainability/default.aspx.

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

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

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

• Environmental Stewardship:

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

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

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

Working with our operators, we have:

• initiated programs to reduce energy and water use;

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

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

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

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

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

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

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

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

• Investments in Human Capital.

We have no employees.

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

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

• Corporate Citizenship.

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

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

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

• Diversity & Inclusion.

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

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

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

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

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

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

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

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

for posting new positions and supporting multicultural professionals.

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

Our hotel managers are committed to racial equity and fostering a culture of diversity and inclusion.

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

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• a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds;

shareholder that is a passive foreign investment company or controlled foreign corporation;

• a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC);

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

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

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

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

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

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• We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” determined by including our undistributed ordinary income and net capital gains, if any.

We may elect to retain and pay income tax on our net capital gain.

In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid.

• If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate.

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However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

• Our subsidiaries that are C corporations, including our TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

• Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

Other countries (and, for this purpose, Puerto Rico is best thought of as a separate country) may impose taxes on our and our subsidiaries’ assets and operations within their jurisdictions.

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

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

will distributions be required under the IRC.

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

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

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Subsidiary REITs.

We may in the future form or acquire an entity that is intended to qualify for taxation as a REIT, and we expect that any such subsidiary would so qualify at all times during which we intend for its REIT election to remain in effect.

We may in the future form or acquire an entity that is intended to qualify for taxation as a REIT.

When a subsidiary qualifies for taxation as a REIT separate and apart from its REIT parent, the subsidiary’s shares are qualifying real estate assets for purposes of the REIT parent’s 75% asset test described below.

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

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

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

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

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

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

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

Moreover, because our TRSs are taxed

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

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

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

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For example, if a TRS pays interest, rent or other amounts to its affiliated REIT in an amount that exceeds what an unrelated third party would have paid in an arm’s length transaction, then the REIT generally will be subject to an excise tax equal to 100% of the excessive portion of the payment.

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

tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS.

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

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We generally do not intend to lease property to any party if rents from that property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.

In this regard, we already own close to, but less than, 10% of the outstanding common shares of TA, and TA has undertaken to limit its redemptions and repurchases of outstanding common shares so that we do not come to own 10% or more of its outstanding common shares.

In this regard, we currently own close to, but less than, 10% of the outstanding common shares of TA, and TA has undertaken to limit its redemptions and repurchases of outstanding common shares so that we do not come to own 10% or more of its outstanding common shares.

Our declaration of trust and bylaws generally disallow transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.

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

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

In addition, a de minimis amount of noncustomary

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

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

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• for which the REIT makes a proper election to treat the property as foreclosure property.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.

Thus, if a REIT should lease foreclosure property in exchange for rent that qualifies as “rents from real property” as described above, then that rental income is not subject to the foreclosure property income tax.

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• which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income or a TRS.

Other than sales of foreclosure property, any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business, together known as dealer gains, may be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate.

as income from a prohibited transaction that is subject to a penalty tax at a 100% rate.

The 100% tax does not apply to gains from the sale of property that is held through a TRS, although such income will be subject to tax in the hands of the TRS at regular corporate income tax rates;

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At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes:

• At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our stock or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.

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

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

otherwise excepted as discussed below.

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

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

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In addition, if we fail the 5% asset test, the 10% vote test or the 10% value test at the close of any quarter and we do not cure such failure within thirty days after the close of that quarter, that failure will nevertheless be excused if (a) the failure is de minimis and (b) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy the 5% asset test, the 10% vote test and the 10% value test.

For purposes of this relief provision, the failure will be de minimis if the value of the assets causing the failure does not exceed $10,000,000.

For purposes of this relief provision, the failure will be de minimis if the value of the assets causing the failure does not exceed the lesser of (a) 1% of the total value of our assets at the end of the relevant quarter or (b) $10,000,000.

If our failure is not de minimis, or if any of the other REIT asset tests have been violated, we may nevertheless qualify for taxation as a REIT if (a) we provide the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) we pay a tax equal to the greater of (1) $50,000 or (2) the highest regular corporate income tax rate imposed on the net income generated by the assets causing the failure during the period of the failure, and (d) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy all of the REIT asset tests.

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Accordingly, from and after January 31, 2007 we expect that the rental income we have received and will receive from TA and its subsidiaries has been and will be “rents from real property” under Section 856(d) of the IRC, and therefore qualifying income under the 75% and 95% gross income tests described above.

As disclosed elsewhere in this Annual Report on Form 10-K, in connection with the BP Acquisition, we entered into the Consent Agreement and the Voting Agreement, pursuant to which, among other things, we have agreed to vote all of our TA common shares in favor of the BP Acquisition and to amend and restate our existing TA lease and guaranty agreements, effective at the time of the Merger.

Our Relationship with Sonesta .

We own (directly and indirectly through one of our TRSs) approximately 34% of the outstanding common shares of Sonesta.

As of December 31, 2022, we owned (directly and indirectly through one of our TRSs) approximately 34% of the outstanding common shares of Sonesta.

We have not elected to treat Sonesta as a TRS, and it is not otherwise an automatic TRS because no TRS of ours owns more than 35% of Sonesta.

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In lease transactions involving our TRSs, our intent is for the rents paid to us by the TRS to qualify as “rents from real property” under the REIT gross income tests summarized above.

In order for this to be the case, the manager operating the leased property on behalf of the applicable TRS must be an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the IRC, and the hotels leased to the TRS must be “qualified lodging facilities” within the meaning of Section 856(d)(9)(D) of the IRC.

In order for this to be the case, the manager operating the

leased property on behalf of the applicable TRS must be an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the IRC, and the hotels leased to the TRS must be “qualified lodging facilities” within the meaning of Section 856(d)(9)(D) of the IRC.

Qualified lodging facilities are defined as hotels, motels or other establishments where more than half of the dwelling units are used on a transient basis, provided that legally authorized wagering or gambling activities are not conducted at or in connection with such facilities.

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

Provided a taxpayer makes an

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

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

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

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In addition to the other distribution requirements above, to preserve our qualification for taxation as a REIT we are required to timely distribute all C corporation earnings and profits that we inherit from acquired corporations, as described below.

We may elect to retain, rather than distribute, some or all of our net capital gain and pay income tax on such gain.

In addition, if we so elect by making a timely designation to our shareholders, our shareholders would include their proportionate share of such undistributed capital gain in their taxable income, and they would receive a corresponding credit for their share of the federal corporate income tax that we pay thereon.

Our shareholders would then increase the adjusted tax basis of their shares by the difference between (a) the amount of capital gain dividends that we designated and that they included in their taxable income, and (b) the tax that we paid on their behalf with respect to that capital gain.

Acquisitions of C Corporations

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However, corporate shareholders may be required to treat up to 20% of any capital gain dividend as ordinary income under Section 291 of the IRC.

In addition, we may elect to retain net capital gain income and treat it as constructively distributed.

In that case:

(1) we will be taxed at regular corporate capital gains tax rates on retained amounts;

If for any taxable year we designate capital gain dividends for our shareholders, then a portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all outstanding classes of our shares.

We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S.

shareholders at preferential maximum rates (including any qualified dividend income and any capital gains attributable to real estate depreciation recapture that are subject to a maximum 25% federal income tax rate) so that the designations will be proportionate among all outstanding classes of our shares.

We may elect to retain and pay income taxes on some or all of our net capital gain.

In addition, if we so elect by making a timely designation to our shareholders:

(1) each of our U.S.

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(4) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.

If we elect to retain our net capital gains in this fashion, we will notify our U.S.

shareholders of the relevant tax information within sixty days after the close of the affected taxable year.

We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S.

Distributions in excess of our current or accumulated earnings and profits will not be taxable to a U.S.

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trade or business and a non-U.S.

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

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

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

trade or business.

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national securities exchange;

however, we cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed.

cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed.

Distributions .

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national securities exchange, capital gain dividends that we declare and pay to a non-U.S.

shareholder on those shares, as well as dividends to a non-U.S.

shareholder on those shares, as well as dividends to such a non-U.S.

shareholder on those shares attributable to our sale or exchange of “United States real property interests” within the meaning of Section 897 of the IRC, or USRPIs, will not be subject to withholding as though those amounts were effectively connected with a U.S.

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shareholder, may owe the up to 30% branch profits tax under Section 884 of the IRC (or lower applicable tax treaty rate) in respect of these amounts.

Although the law is not entirely clear on the matter, it appears that amounts designated by us as undistributed capital gain in respect of our shares that are held by non-U.S.

shareholders generally should be treated in the same manner as actual distributions by us of capital gain dividends.

Under this approach, the non-U.S.

shareholder would be able to offset as a credit against its resulting U.S.

federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S.

shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S.

shareholder’s actual U.S.

federal income tax liability on such deemed distribution.

If we were to designate any portion of our net capital gain as undistributed capital gain, a non-U.S.

shareholder should consult its tax advisors regarding taxation of such undistributed capital gain.

Dispositions of Our Shares .

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

For these purposes, we believe that the statutory ownership

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

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

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

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

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

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

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

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Fiduciaries considering an investment in our securities should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria or is otherwise appropriate.

The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.

The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment

meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.

Prohibited Transactions

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

The particular facts concerning the

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

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

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

If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or his beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no excise tax will be imposed.

If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or their beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no excise tax will be imposed.

Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities involves a non-exempt prohibited transaction.

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

We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.

transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.

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

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

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

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

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

What changed 10-K

Item 1. Business