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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-24 · 205 added, 221 removed, 500 unchanged (46% of the section changed)

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

As of December 31, 2021, we owned 1,091 properties in 47 states, Washington D.C., Canada and Puerto Rico.

As of December 31, 2022, we owned 1,003 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

Business Environment and Outlook.

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

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

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

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.

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

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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.

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

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

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

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

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

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

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

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

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

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

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

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

We believe that our current financial resources, actions we have taken and are in the process of taking to manage our liquidity and our expectations as to the future performance of the lodging industry and the industries in which our net lease retail tenants operate will enable us to withstand the COVID-19 pandemic and its aftermath.

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.

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, the operations of our tenants and our financial results.

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has signaled that further 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 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 or 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 and the lenders amended our credit agreement 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.

In October 2022, we and the lenders further amended our credit agreement and 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 February 24, 2023, we have no amounts outstanding under our credit facility and $616,867 of cash or cash equivalents.

In February 2023, one of our subsidiaries issued $610,200 in aggregate principal amount of net lease mortgage notes.

The notes were issued in three classes, as summarized below:

Note Class S&P Rating Amount Coupon Rate Term Maturity

Class A AAA $ 305,000 5.15% 5 years February 2028

Class B AA 173,000 5.70% 5 years February 2028

Class C A 132,200 6.70% 5 years February 2028

Total / weighted average $ 610,200 5.50%

The notes are non-recourse and are secured by the assets of the subsidiary, which include 308 net lease retail properties with annual minimum rents of $65,273 and a gross book value of $754,841 as of December 31, 2022.

The net proceeds from the issuance of the notes were approximately $555,000, after initial purchaser discounts and offering costs.

Simultaneously with the pricing of the notes, we announced the early redemption of our outstanding 4.50% senior notes due 2023 at a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest to, but excluding the date of redemption.

This redemption is expected to occur on or about March 8, 2023 and we currently expect to fund this redemption with the proceeds from the issuance of the net lease mortgage notes described above.

Disposition Activities.

During the year ended December 31, 2022, we sold 65 hotels with 8,296 rooms for an aggregate sales price of $543,413, excluding closing costs.

Also during the year ended December 31, 2022, we sold 21 net lease properties with an aggregate of 138,638 rentable square feet for an aggregate sales price of $16,435, excluding closing costs.

From January 1, 2023 through February 24, 2023, we sold eight hotels with 1,097 rooms and a carrying value of $47,517 for a sale price of $53,268.

As of February 24, 2023, we have entered into agreements to sell nine Marriott branded hotels with an aggregate of 1,210 rooms for an aggregate sales price of $88,476, one additional hotel with 219 keys for a sale price of $14,580 and two net lease properties with an aggregate of 2,384 square feet for an aggregate sales price of $670.

We expect the majority of these pending sales to be completed by the end of the first quarter of 2023.

We continue to market two net lease properties with an aggregate of 7,283 square feet for sale.

For further discussion of our property sales and debt, see Notes 4, 5 and 7 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

Management Agreements and Leases .

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

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

At December 31, 2022, we owned 765 service-oriented properties with 180 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

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

Hotel Agreements.

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

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

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

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

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

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

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

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

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

As of December 31, 2022, we owned 196 hotels that are managed by Sonesta.

In January 2023, we sold one of these hotels and one additional hotel is under agreement to be sold.

We expect this sale to be completed in March 2023.

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

Hotel Portfolio .

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In 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 2020 periods.

hotel industry generally realized increases in 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.

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

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

For the years ended December 31, 2022 and 2021, SVC’s 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.

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RevPAR $ 82.10 $ 57.95 $ 24.15

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

Net Lease Portfolio.

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As of December 31, 2022, we leased 177 of our travel centers to TA under five leases that expire between 2029 and 2035 and require annual minimum rents of $246,110.

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

Additional details of our hotel operating agreements and net lease agreements are set forth in Notes 5 , 9 and 15 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

Acquisition Activities.

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

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

Disposition Activities.

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

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

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

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

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

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

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

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

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Hotel operating revenues $ 1,467,344 $ 1,104,678 $ 362,666 32.8 %

Rental income - hotels 1,808 2,472 (664) (26.9) %

Rental income - net lease portfolio 389,094 387,684 1,410 0.4 %

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

Rental income 395,667 390,902 4,765 1.2 %

Total revenues 1,863,011 1,495,580 367,431 24.6 %

Hotel operating expenses 1,227,357 1,010,737 216,620 21.4 %

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Transaction related costs 1,920 64,764 (62,844) n/m

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

Loss on asset impairment, net 10,989 78,620 (67,631) (86.0) %

Total expenses 1,698,954 1,709,183 (10,229) (0.6) %

Gain on sale of real estate, net 47,818 11,522 36,296 315.0 %

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

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

Unrealized (losses) gains on equity securities, net (8,104) 22,535 (30,639) (136.0) %

Interest income 3,379 664 2,715 408.9 %

Interest expense (341,795) (365,721) 23,926 (6.5) %

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

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

Loss before income taxes and equity losses of an investee (135,436) (544,603) 409,167 n/m

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

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

Income tax (expense) benefit 199 941 (742) n/m

Equity in earnings (losses) of an investee 2,856 (941) 3,797 n/m

Net loss $ (132,381) $ (544,603) $ 412,222 n/m

Weighted average shares outstanding (basic and diluted) 164,738 164,566 172 0.1 %

Net income (loss) per common share:

Net loss per common share:

(basic and diluted) $ (0.80) $ (3.31) $ 2.51 n/m

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Additional operating statistics of our hotels are included in the tables on page 68.

Rental income - hotels.

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

Rental income - net lease portfolio.

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

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 ($5,473), partially offset by the impact of properties sold and vacancies at certain of our properties ($708).

Hotel operating expenses.

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

The increase in hotel operating expenses is primarily the result of an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($127,784), an increase in rooms, food and beverage, marketing and sales, management fees and other operating expenses ($153,392), partially offset by a decrease in real estate taxes and the sale of certain hotels since January 1, 2021 ($64,556).

Other operating expenses.

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

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

Depreciation and amortization - hotels.

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

The decrease in depreciation and amortization - hotels is primarily the result of the sale of certain hotels and certain hotels classified as held for sale ($46,432) and certain of our depreciable assets becoming fully depreciated ($50), partially offset by depreciation and amortization related to capital additions since January 1, 2021 ($1,257).

Depreciation and amortization - net lease portfolio.

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

The decrease in depreciation and amortization - net lease portfolio is a result of certain of our depreciable assets becoming fully depreciated since January 1, 2021 ($13,725) and the result of the sale of certain properties since January 1, 2021 ($26,307).

General and administrative.

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

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 ($6,642), and lower professional service expenses ($282) in the 2022 period.

Transaction related costs.

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

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

Loss on asset impairment.

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

Transaction related costs for the year ended December 31, 2022 included $1,920 of costs related to our exploration of possible financing transactions.

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

Loss on asset impairment, net.

We recorded a $10,989 loss on asset impairment during the 2022 period to reduce the carrying value of 26 hotels and five net lease properties to their estimated fair value less costs to sell.

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

Gain on sale of real estate, net.

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

Gain on insurance settlement.

We recorded a $62,386 gain on insurance settlement in 2020 as a result of insurance proceeds received for our leased hotel in San Juan, PR related to Hurricane Maria.

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

Unrealized gains on equity securities, net.

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

We recorded a $47,818 net gain on sale of real estate in 2022 in connection with the sales of 65 hotels and 21 net lease properties and a $11,522 net gain on sale of real estate in 2021 in connection with the sales of seven hotels and eleven net lease properties.

Unrealized (losses) gains on equity securities, net.

Unrealized (losses) gains on equity securities, net represent the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of December 31, 2022 and 2021.

Interest income.

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

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

Interest expense.

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

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

Loss on early extinguishment of debt .

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

Income tax benefit (expense).

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

Equity in losses of an investee.

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

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

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 the amendment of our revolving credit facility and the repayment of $500,000 of unsecured senior notes.

Income tax (expense) benefit.

The change in income tax (expense) benefit is primarily due to a deferred foreign tax benefit in the 2021 period ($1,972) and a decrease in state tax expenses in the 2022 period ($239).

Equity in earnings (losses) of an investee.

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

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

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

Our Managers and Tenants

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 have had adverse impacts on some of those 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 our properties that they operate may decline.

We continue to carefully monitor the effects of the market practices that arose or increased since the beginning of the COVID-19 pandemic and economic and market conditions on our operators and our other stakeholders.

As of December 31, 2022, all 238 of our hotels were managed by five hotel operating companies.

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TA is our largest tenant (177 travel centers).

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

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

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

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

We sold one Marriott hotel in April 2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As of that date, we owned 261 hotels managed by Sonesta, including the 67 hotels we expected to sell, or the Sale Hotels.

Among other terms, the changes to the agreements between us and Sonesta for 194 hotels we did not expect to sell, or the Retained Hotels, were as follows:

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

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

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

• The owner’s priority return for the Retained Hotels was initially set at $325,200 annually.

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

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

As of December 31, 2022, we owned 196 hotels that are managed by Sonesta.

In January 2023, we sold one of these hotels and one additional hotel is under agreement to be sold.

We expect this sale to be completed by the end of the first quarter of 2023.

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

Effective December 31, 2022, the terms of the management agreements for the remaining two Sale Hotels were extended to January 31, 2023 and automatically renew for successive one month periods until the applicable hotel is sold or the agreement is terminated.

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

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

The total owner’s priority return for these two remaining Sale Hotels was $7,238 as of December 31, 2022.

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

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

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

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

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

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

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

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

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

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

We recorded reserves for uncollectable amounts of $320 and reduced our reserves for uncollectable amounts by $9 for the years ended December 31, 2022 and 2021, respectively, based on our assessment of collectability and cash received from certain tenants.

We had reserves for uncollectable rents of $7,697 and $15,519 as of December 31, 2022 and December 31, 2021, respectively, included in other assets in our consolidated balance sheets.

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

EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period reported based on the most recent operating information, if any, furnished by the tenant.

EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period, based on the most recent operating information, if any, furnished by the tenant.

Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us.

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

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

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

In instances where we do not have tenant financial information, we calculate an implied coverage ratio for the period based on other tenants with available financial statements operating the same brand or within the same industry.

As a result, we believe using this implied coverage metric provides a more reasonable estimated representation of recent operating results and the financial condition for those tenants.

Our net lease properties generated coverage of 3.00x and 2.58x as of December 31, 2022 and 2021, respectively.

Our Operating Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

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

We believe that these sources of funds will be sufficient to meet our operating expenses and capital expenditures, 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):

Year Ended December 31,

2021 2020 2019

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 $ 45,420 $ 947,418

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

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

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

The increase in cash provided by operating activities for the year ended December 31, 2022 as compared to the prior year is primarily due to higher returns and rents earned from our hotel and net lease portfolios and lower interest expense in 2022.

The change from cash used in investing activities in 2021 to cash provided by investing activities in 2022 is primarily due to an increase in real estate dispositions in the 2022 period, partially offset by an increase in investments in Sonesta in the 2022 period.

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

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

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Our Investment and Financing Liquidity and Capital Resources

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

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

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

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

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We currently expect to fund $250,000 during 2023 for capital improvements to certain hotels 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 year ended December 31, 2022, certain of our hotel managers deposited $9,268 to these accounts and spent $4,756 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of December 31, 2022, there was $6,940 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash.

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

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As of December 31, 2022, we had $2,627 of unspent leasing-related obligations related to certain net lease tenants.

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

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

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

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

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

The sales of these properties are subject to conditions;

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

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

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

During the year ended December 31, 2022, we sold 65 hotels with 8,296 rooms for an aggregate sales price of $543,413, excluding closing costs, and 21 net lease properties with 138,638 square feet for an aggregate sales price of $16,435, excluding closing costs.

We used the net proceeds from these sales for the repayment of debt and for general business purposes.

From January 1, 2023 through February 24, 2023, we sold eight hotels with 1,097 rooms and a carrying value of $47,517 for a sale price of $53,268.

We expect the majority of these pending sales to be completed by the end of the first quarter of 2023.

We continue to market two net lease properties with an aggregate of 7,283 square feet for sale.

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

During the year ended December 31, 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 year ended December 31, 2022, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

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

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$ 0.23 $ 38,044

On January 13, 2022, we declared a quarterly distribution to common shareholders of record on January 24, 2022 of $0.01 per share, or $1,652.

On January 12, 2023, we declared a regular quarterly distribution to common shareholders of record on January 23, 2023 of $0.20 per share, or $33,091.

We paid this amount on February 16, 2023 using cash on hand.

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

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

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain an $800,000 revolving credit facility which is governed by our credit agreement.

The maturity date of our revolving credit facility is July 15, 2023.

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 December 31, 2022, on the amount outstanding under our revolving credit facility.

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As of December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 6.79%.

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

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

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

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

As a result of the amendments, among other things:

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

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

We and our lenders amended our credit agreement in 2020.

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

As a result of the amendment, among other things:

• we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by the pledged subsidiaries;

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

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

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

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

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

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

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

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

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

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

• in order to exercise the first six month extension option under the credit agreement, we would have needed to be in compliance with the financial covenants under the agreement calculated using pro forma projections as defined in the agreement for the quarter ending June 30, 2022, annualized, and have repaid or refinanced our $500,000 of 5.00% senior notes due in August 2022;

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

On April 14, 2022, we and the lenders further amended our credit agreement and exercised our first of two options to extend the maturity date of our revolving credit facility by six months to January 15, 2023.

Pursuant to the amendment:

• we repaid $200,000 of the outstanding balance and reduced the size of the revolving credit facility from $1,000,000 to $800,000;

• we became permitted to acquire up to an aggregate of $300,000 of real property through the waiver period, which was extended pursuant to the amendment to December 31, 2022;

• certain of the financial covenants in our credit agreement became tested and in full force and effect beginning with the quarter ended September 30, 2022 and were modified to lower the required fixed charge coverage ratio from 1.5x to 1.0x through December 31, 2022, increase the required leverage ratio limit from 60% to 70% and increase the minimum liquidity requirement from $125,000 to $150,000 (which amount is subject to an additional increase as noted below);

• we were able to fund through the waiver period, which ended on December 31, 2022, an aggregate of $100,000 of capital contributions requested by Sonesta for business activities and to acquire additional shares of common stock of TA to retain our pro rata ownership of TA, an increase from the previous aggregate limit of $50,000;

• the interest rate premium payable on borrowings under our revolving credit facility was increased from 235 basis points per annum to 250 basis points per annum, with the facility fee remaining unchanged at 30 basis points per annum on the total amount of lending commitments under the facility.

The interest rate premiums and the facility fee continued to be subject to adjustment based upon changes to our credit ratings and, pursuant to the amendment, the interest rate premium will increase by an additional 25 basis points if we do not satisfy certain financial covenants;

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

On October 4, 2022, we and the lenders further amended the 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.

As of December 31, 2022, we have met the conditions to exit the waiver period, and as a result, the restrictions on capital expenditures and other investments, including acquisitions, have expired.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $1,562,869 as of December 31, 2022 to secure our obligations under the credit agreement.

As of December 31, 2022, we had no borrowings outstanding under our revolving credit facility.

Our term debt maturities (other than our revolving credit facility) as of December 31, 2022 were as follows:

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

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

In February 2023, one of our subsidiaries issued $610,200 in aggregate principal amount of net lease mortgage notes.

The notes were issued in three classes, as summarized below:

Note Class S&P Rating Amount Coupon Rate Term Maturity

Class A AAA $ 305,000 5.15% 5 years February 2028

Class B AA 173,000 5.70% 5 years February 2028

Class C A 132,200 6.70% 5 years February 2028

Total / weighted average $ 610,200 5.50%

The notes are non-recourse and secured by the assets of the subsidiary, which includes 308 net lease properties with annual minimum rents of $65,273 and a gross book carrying value of $754,841 as of December 31, 2022.

The net proceeds from this issuance were approximately $555,000 after initial purchaser discounts and offering costs.

We simultaneously announced the early redemption of our outstanding 4.50% Senior Notes due 2023 at a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest to, but excluding the date of redemption.

This redemption is expected to occur on or about March 8, 2023 and we currently expect to fund this redemption by using the proceeds from the net lease mortgage notes described above.

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

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

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

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

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

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

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

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

We may also assume mortgage debt on properties we may acquire or obtain mortgage financing on our existing properties.

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

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

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

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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 Annual Report on Form 10-K, the continued duration and severity of the current economic downturn resulting from the COVID-19 pandemic are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing.

However, as discussed elsewhere in this Annual Report on Form 10-K, 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 December 31, 2021 consisted of outstanding borrowings under our $1,000,000 revolving credit facility and $6,200,000 of publicly issued term debt.

Our debt obligations at December 31, 2022 consisted of $5,700,000 of publicly issued term debt.

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

These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios and our credit agreement currently restricts our ability to make certain investments and limits our distributions under certain circumstances.

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

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

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

As of December 31, 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

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Total unencumbered assets / unsecured debt 159.1% Minimum 150%

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

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

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

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.

Acceleration and Cross-Default

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

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

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

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Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., TA and Sonesta and others affiliated with them.

We have relationships and historical and continuing transactions with RMR, RMR Inc., TA and Sonesta and others affiliated with them.

For further information about these and other such relationships and related person transactions, see Notes 4, 5, 9 and 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.

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

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

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

Critical Accounting Estimates

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

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

For the years ended December 31, 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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As of December 31, 2022, our net lease properties were 97.6% occupied and we had 23 properties available for lease.

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

During the year ended December 31, 2022, we entered into lease renewals for 159,818 rentable square feet (15 properties) at weighted (by rentable square feet) average rents that were 4.9% above prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 6.3 years.

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

Also, during the year ended December 31, 2022, we entered into new leases for an aggregate of 224,127 rentable square feet (eight properties) at weighted (by rentable square feet) average rents that were 3.3% above prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.8 years.

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

of Buildings Investment (1)

of Properties Investment (1)

Percent of Total Investment Annualized

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Petro Stopping Centers 44 1,021,226 20.0 % 78,099 21.0 % 2.47x

AMC Theatres 11 102,580 2.0 % 7,751 2.1 % 0.18x

The Great Escape 14 98,242 1.9 % 7,711 2.1 % 7.19x

Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 1.79x

AMC Theatres 9 82,488 1.6 % 6,716 1.8 % 1.73x

Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 3.48x

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Express Oil Change 23 49,724 1.0 % 3,717 1.0 % 4.32x

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

Pizza Hut 40 45,285 0.9 % 3,401 0.9 % 2.21x

425 1,237,795 24.2 % 85,078 22.9 % 3.49x

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Tenant Brand Affiliation No.

of Buildings Investment (1)

of Properties Investment (1)

Percent of Total Investment Annualized

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TravelCenters of America TravelCenters of America / Petro Stopping Centers 177 $ 3,310,415 64.8 % $ 246,110 66.1 % 2.74 x (4)

American Multi-Cinema, Inc.

AMC Theatres 11 102,580 2.0 % 7,751 2.1 % 0.18x

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 % 1.79 x

American Multi-Cinema, Inc.

AMC Theatres 9 82,488 1.6 % 6,716 1.8 % 1.73 x

Styx Acquisition, LLC Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 3.48 x

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Express Oil Change 23 49,724 1.0 % 3,717 1.0 % 4.32 x

Regal Cinemas, Inc.

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

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

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,215 0.9 % 5.80 x

Automotive Remarketing Group, Inc.

America's Auto Auction 6 38,314 0.8 % 3,216 0.9 % 5.88 x

Subtotal, top 10 309 3,904,743 76.4 % 290,369 78.0 % 2.93 x

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We lease 177 travel centers (133 under the TravelCenters of America brand and 44 under the Petro Stopping Centers brand) to a subsidiary of TA under master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.

During 2022, we assigned the leasehold interest of two travel centers to TA.

TA has two renewal options for 15 years each for all of the travel centers.

In addition to the payment of our minimum rent, the TA leases provide for payment to us of percentage rent based on increases in total non-fuel revenues over base levels (3.5% of non-fuel revenues above threshold amounts defined in the agreements).

TA’s remaining deferred rent obligation of $22,018 as of December 31, 2021 is being paid in quarterly installments of $4,404 through January 31, 2023.

TA’s remaining deferred rent obligation of $4,404 as of December 31, 2022 was paid in January 2023.

(5) Consists of 170 tenants with an average investment of $7,077 and average annual minimum rent of $482.

As of December 31, 2022, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

of Buildings (1)

of Properties

Investment (1)

5 unchanged sentences

Restaurants-Casual Dining 53 192,199 3.8 % 11,945 3.2 % 2.50x

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

Health and Fitness 13 186,365 3.6 % 11,011 3.0 % 1.66x

Movie Theaters 19 164,809 3.2 % 13,163 3.5 % 1.42x

Grocery Stores 19 129,152 2.5 % 9,212 2.5 % 4.05x

2 unchanged sentences

Automotive Equipment & Services 64 107,054 2.1 % 7,665 2.1 % 4.06x

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

Automotive Dealers 8 62,550 1.2 % 4,956 1.3 % 5.65x

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

Entertainment 4 61,436 1.2 % 4,301 1.2 % 3.12x

Educational Services 9 55,319 1.1 % 4,451 1.2 % 1.78x

Miscellaneous Manufacturing 7 32,873 0.6% 2,445 0.7 % 15.54x

General Merchandise Stores 4 55,112 1.1 % 3,874 1.0 % 2.86x

Building Materials 29 33,280 0.7 % 2,783 0.7 % 0.07x

Car Washes 5 28,658 0.6 % 2,170 0.6 % 3.45x

Miscellaneous Manufacturing 5 24,148 0.5 % 1,689 0.4 % 16.46x

Drug Stores and Pharmacies 7 19,251 0.4 % 1,258 0.3 % 0.59x

3 unchanged sentences

Other 5 27,243 0.5 % 3,941 1.1 % 4.76x

Vacant 30 56,556 1.1% — — % n/a

Vacant 23 52,994 1.0 % — — % —x

Total 765 $ 5,107,828 100.0 % $ 372,418 100.0 % 3.00x

31 unchanged sentences

2045 63,490 3,628 1.0% 100.0%

2045 63,489 1,584 0.4% 100.0%

Total 13,050,456 $ 372,418 100.0%

6 unchanged sentences

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

Ohio 1,302,273 26,241 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 16,117 4.4%

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%

Nevada 190,262 9,625 2.6%

New Mexico 246,478 11,014 3.0%

Other 6,122,532 166,605 44.8%

3 unchanged sentences

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

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

Impact of Climate Change

9 unchanged sentences

In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

Our property manager, RMR LLC, is a member of the Energy Star program, a joint program of the U.S.

Our property manager, RMR, is a member of the Energy Star program, a joint program of the U.S.

Environmental Protection Agency and the U.S.

17 unchanged sentences

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

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

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

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

2 unchanged sentences

2022 2021 2020

Net income (loss) $ (544,603) $ (311,382) $ 259,750

Net loss $ (132,381) $ (544,603) $ (311,382)

Depreciation and amortization expense 401,108 485,965 498,908

3 unchanged sentences

10,989 78,620 55,756

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

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

8,104 (22,535) (19,882)

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

3,723 2,605 (61)

FFO 243,725 (11,470) 221,078

2 unchanged sentences

Loss on early extinguishment of debt (6)

— 9,394 8,451

Loss contingency (7)

— 3,962 1,997

Gain on insurance settlement, net of tax (8)

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

1,037 2,270 964

Normalized FFO $ 247,473 $ 55,564 $ 201,962

3 unchanged sentences

Basic and diluted per common share amounts:

Net income (loss) $ (3.31) $ (1.89) $ 1.58

Net loss $ (0.80) $ (3.31) $ (1.89)

FFO $ 1.48 $ (0.07) $ 1.34

1 unchanged sentence

Distributions declared per share $ 0.23 $ 0.04 $ 0.57

(1) We recorded a $47,818 net gain on sales of 65 hotels and 21 net lease properties during the year ended December 31, 2022.

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

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

We recorded a $159,535 gain on sale of real estate during the year ended December 31, 2019 in connection with the sales of 20 travel centers.

(2) We recorded a $10,989 loss on asset impairment during the year ended December 31, 2022 to reduce the carrying value of 26 hotels and 5 net lease properties to their estimated fair value.

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

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

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

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

(4) Represents our proportionate share of our equity investment in Sonesta during the years ended December 31, 2022, 2021 and 2020.

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

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

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

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

We recorded a $8,451 loss on early extinguishment of debt in the year ended December 31, 2019 related to the termination of a term loan commitment we arranged in connection with the acquisition of a net lease portfolio.

(5) Transaction related costs for the year ended December 31, 2022 primarily consisted of costs related to our exploration of possible financing transactions.

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

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

(6) 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 credit agreement and the repayment of

$500,000 of unsecured notes.

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

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

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

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

3 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis