What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-03 · 189 added, 375 removed, 331 unchanged (63% of the section changed)

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

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

Business Environment and Outlook.

As a result of the COVID-19 pandemic, and the 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.

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

hospitality industry to be a multi-year process.

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.

As of March 31, 2023, we owned 985 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

In response to inflationary pressures, the U.S.

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

Federal Reserve has increased the federal funds rate multiple times 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 is now in, or may soon enter, an economic recession and they have caused disruptions in the financial markets.

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

Liquidity and Financing Transactions .

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

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

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

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

Disposition Activities.

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

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

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

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

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

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

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

Consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, unemployment levels, work from home policies, use of technologies and broader economic trends.

Increased labor costs and other price inflation may continue to negatively impact our hotel operations and the operations of our tenants.

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.

Management Agreements and Leases .

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

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

We also owned 769 service-oriented properties with 178 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

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

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

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

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

At March 31, 2023, we owned 220 hotels operated under four agreements.

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

At March 31, 2023, we owned 765 service-oriented properties with 179 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

Our condensed 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 net lease properties.

Hotel Portfolio.

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

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

As of March 31, 2023, we owned 220 hotels.

In the three months ended March 31, 2023, 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 2022 periods.

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

Three Months Ended September 30,

Nine Months Ended September 30,

2022 2021 Change 2022 2021 Change

Three Months Ended March 31,

2023 2022 Change

of hotels 220 298 (78)

of rooms or suites 37,527 47,285 (9,758)

Occupancy 65.8 % 60.1 % 5.7 pts 61.9 % 52.2 % 9.7 pts

Occupancy 57.6 % 53.3 % 4.3 pts

ADR $ 138.73 $ 115.24 20.4 %

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

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

For the three months ended March 31, 2023 and 2022, our comparable results exclude one hotel that had suspended operations during part of the periods presented.

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

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

2022 2021 Change 2022 2021 Change

Three Months Ended March 31,

2023 2022 Change

Comparable Hotels

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of rooms or suites 37,429 37,429 —

Occupancy 65.9 % 59.3 % 6.6 pts 62.0 % 51.2 % 10.8 pts

Occupancy 57.7 % 53.9 % 3.8 pts

ADR $ 138.73 $ 121.77 13.9 %

RevPAR $ 80.05 $ 65.63 22.0 %

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

Net Lease Portfolio .

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

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

As of March 31, 2023, we owned 765 service-oriented retail properties with 13,319,743 square feet leased to 179 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $369,756.

Our net lease portfolio was 97.4% occupied as of March 31, 2023 with a weighted (by annual minimum rent) lease term of 9.4 years, operating under 139 brands in 21 distinct industries.

TA is our largest tenant.

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

As of March 31, 2023, 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 Quarterly Report on Form 10-Q, in connection with the TA Merger, we entered into the Consent Agreement, pursuant to which, among other things, we agreed to amend and restate our existing TA lease and guaranty agreements, effective as of the time of the TA Merger.

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

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

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

For the Three Months Ended September 30,

Increase % Increase

2022 2021 (Decrease) (Decrease)

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

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

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

Hotel operating expenses 318,266 285,233 33,033 11.6 %

Other operating expenses 3,511 4,437 (926) (20.9) %

Depreciation and amortization - hotels 55,780 66,065 (10,285) (15.6) %

Depreciation and amortization - net lease 45,734 58,098 (12,364) (21.3) %

Total depreciation and amortization 101,514 124,163 (22,649) (18.2) %

General and administrative 11,293 14,231 (2,938) (20.6) %

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

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

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

Other operating income:

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

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

Interest income 1,442 203 1,239 610.3 %

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

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

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

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

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

Weighted average shares outstanding (basic and diluted) 164,745 164,590 155 0.1 %

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

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

Hotel operating revenues.

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

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

Rental income.

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

Hotel operating expenses.

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

Other operating expenses.

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

Depreciation and amortization - hotels.

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

Depreciation and amortization - net lease.

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

General and administrative.

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

Transaction related cos ts.

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

Loss on asset impairment, net.

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

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

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

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

Unrealized gains on equity securities, net.

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

Interest income.

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

Interest expense.

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

Income tax (expense) benefit.

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

Equity in earnings of an investee.

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

Net income (loss).

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

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

For the Nine Months Ended September 30,

Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022

For the Three Months Ended March 31,

Increase % Increase

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Depreciation and amortization - hotels 53,385 56,162 (2,777) (4.9) %

Depreciation and amortization - net lease portfolio 138,326 169,436 (31,110) (18.4) %

Depreciation and amortization - net lease properties 46,654 47,951 (1,297) (2.7) %

Total depreciation and amortization 100,039 104,113 (4,074) (3.9) %

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Other operating income:

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

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

Interest income 2,735 485 2,250 463.9 %

Gain on sale of real estate, net 41,898 5,548 36,350 n/m

Unrealized gains (losses) on equity securities, net 49,430 (10,260) 59,690 n/m

Interest income 2,786 273 2,513 n/m

Interest expense (81,580) (92,344) 10,764 11.7 %

Loss on early extinguishment of debt (44) — (44) n/m

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

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

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

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

Income (loss) before income taxes and equity in losses of an investee 26,391 (118,410) 144,801 (122.3) %

Income tax benefit (expense) 3,780 (695) 4,475 n/m

Equity in losses of an investee (4,221) (717) (3,504) n/m

Net income (loss) $ 25,950 $ (119,822) $ 145,772 121.7 %

Weighted average shares outstanding (basic and diluted) 164,867 164,667 200 0.1 %

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

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

Net income (loss) per common share (basic and diluted) $ 0.16 $ (0.73) $ 0.89 (121.9) %

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Hotel operating revenues.

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

The increase in hotel operating revenues is primarily a result of higher occupancies and average rates at certain of our hotels in the 2023 period ($72,500), partially offset by the sale of certain hotels since January 1, 2022 ($35,110).

Additional operating statistics of our hotels are included in the table on page 28.

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.

The decrease in rental income is primarily a result of an increase in reserves for uncollectable amounts in the 2023 period.

Hotel operating expenses.

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

The increase in hotel operating expenses is primarily a result of an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($28,664), an increase in rooms, food and beverage, marketing and sales expenses, management fees and other operating expenses ($16,892), partially offset by a decrease in real estate taxes and the sale of certain hotels since January 1, 2022 ($36,333).

Other operating expenses.

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

The increase in other operating expenses is primarily the result of higher operating expenses at certain net lease properties, partially offset by the sale of certain net lease properties since January 1, 2022.

Depreciation and amortization - hotels.

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

Depreciation and amortization - net lease.

The decrease in depreciation and amortization - net lease is primarily a result of certain of our depreciable assets being fully depreciated since January 1, 2021 ($29,163) and the sale of certain net lease properties since January 1, 2021 ($1,947).

The decrease in depreciation and amortization - hotels is primarily a result of the sale of certain hotels and certain of our depreciable assets becoming fully depreciated ($4,473), partially offset by depreciation and amortization related to capital additions since January 1, 2022 ($1,696).

Depreciation and amortization - net lease properties.

The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets being fully depreciated ($1,362) and the sale of certain net lease properties since January 1, 2022 ($90), partially offset by depreciation and amortization related to capital additions since January 1, 2022 ($155).

General and administrative.

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

The decrease in general and administrative costs is primarily due to a decrease in business management fees ($1,494), partially offset by an increase in legal and accounting fees ($560).

Transaction related cos ts.

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

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

Transaction related costs for the three months ended March 31, 2023 primarily consisted of costs related to potential acquisitions.

Transaction related costs for the three months ended March 31, 2022 are primarily expenses incurred related to our hotel rebranding activities.

Loss on asset impairment, net.

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

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

We recorded a $5,500 loss on asset impairment during the three months ended March 31, 2022 to reduce the carrying value of 25 hotels to their estimated fair value less costs to sell.

Gain on sale of real estate, net.

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

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

Unrealized gains on equity securities, net.

We recorded a $41,898 net gain on sale of real estate during the three months ended March 31, 2023 in connection with the sale of 18 hotels.

We recorded a $5,548 net gain on sale of real estate during the three months ended March 31, 2022 in connection with the sale of five hotels and two net lease properties.

Unrealized gains (losses) on equity securities, net.

Unrealized gains (losses) on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of March 31, 2023 and 2022.

Interest income.

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

The increase in interest income is primarily due to higher interest rates during the 2023 period.

Interest expense.

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

The decrease in interest expense is primarily due to lower average outstanding borrowings in the 2023 period.

Loss on early extinguishment of debt.

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

Income tax expense.

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

Equity in earnings of an investee.

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

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

We recorded a loss on early extinguishment of debt in connection with our redemption of certain senior unsecured notes.

Income tax benefit (expense).

The change from income tax expense to an income tax benefit in 2023 is primarily due to a decrease in our state and foreign taxes in the 2023 period.

Equity in losses of an investee.

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

Our net income and net income per common share (basic and diluted) each increased in the 2023 period compared to the 2022 period 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 may to have adverse impacts on those and industries and businesses.

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

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

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

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

As of March 31, 2023, all 220 of our hotels were managed by four hotel operating companies.

Our 765 net lease properties were leased to 179 tenants as of March 31, 2023.

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

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

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

As of March 31, 2023, our hotel managers included Sonesta (194 hotels), Hyatt (17 hotels), Radisson (eight hotels), and IHG (one hotel).

TA is our largest tenant (177 travel centers).

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

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

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

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

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

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

• 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.

• We will renovate the Retained Hotels to comply with agreed upon brand standards.

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

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

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

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

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

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

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

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

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

We recorded reserves for uncollectable amounts of $3,540 for the three months ended March 31, 2023 and reduced our reserves for uncollectable amounts by $507 for the three months ended March 31, 2022 based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $11,209 and $7,697 as of March 31, 2023 and December 31, 2022, respectively, included in other assets in our condensed consolidated balance sheets.

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

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 the most recent quarter from our tenants, we have calculated an implied EBITDAR for the period using industry benchmark data to more accurately reflect the current operating trends.

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

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

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 financial condition for those tenants.

Our net lease properties generated coverage of 2.98x and 2.67x as of March 31, 2023 and 2022, respectively.

Our Operating Liquidity and Capital Resources

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

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

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.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents and restricted cash at the beginning of the period $ 45,420 $ 947,418

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Cash and cash equivalents and restricted cash at the end of the period $ 195,836 $ 972,572

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

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

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

The change in cash provided by operating activities for the 2023 period compared to the cash used in operating activities for the 2022 period is primarily due to higher returns earned from our hotel portfolio and lower interest expense in the 2023 period.

The increase in cash flows provided by investing activities in the 2023 period compared to the 2022 period is primarily due to an increase in proceeds from the sale of real estate.

The change from cash flows used in financing activities in the 2022 period to cash flows provided by financing activities for the 2023 period is primarily due to the issuance of net lease mortgage notes, partially offset by repayment of senior unsecured notes and an increase in distributions to common shareholders in the 2023 period.

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

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

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

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

During the three months ended March 31, 2023, we funded $19,993 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $200,000 for capital improvements to certain hotels during the last nine months of 2023 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 nine months ended September 30, 2022, our hotel managers and tenants deposited $6,533 to these accounts and spent $3,436 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

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

During the three months ended March 31, 2023, certain of our hotel managers deposited $1,923 to these accounts and spent $1,558 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of March 31, 2023, there was $7,479 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

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

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

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

We did not fund any capital improvements to our properties that we leased to TA during the three months ended March 31, 2023.

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

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

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

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

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

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

During the three months ended March 31, 2023, we funded $219 for capital improvements to our other net lease properties.

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

As of March 31, 2023, we had $2,515 of unspent leasing-related obligations related to certain net lease tenants.

During the three months ended March 31, 2023, we sold 18 hotels with 2,526 rooms for an aggregate sales price of $157,230, excluding closing costs.

From April 1, 2023 through May 5, 2023, we sold two net lease properties with 2,384 square feet for an aggregate sales price of $620, excluding closing costs, and continue to market two additional net lease properties with 7,283 square feet for sale.

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

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

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

During the three months ended March 31, 2023, we declared and paid regular quarterly distributions to common shareholders using cash on hand as follows:

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

January 12, 2023 January 23, 2023 February 16, 2023 $ 0.20 $ 33,090

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

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

$ 0.03 $ 4,953

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

We expect to pay this amount on or about November 17, 2022 using cash on hand.

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

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

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

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

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

On April 13, 2023, we declared a regular quarterly distribution to common shareholders of record as of April 24, 2023 of $0.20 per share, or $33,090.

We expect to pay this amount on or about May 18, 2023.

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 March 31, 2023, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum at March 31, 2023.

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

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

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

We and our lenders amended the credit agreement in 2020.

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 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 further amended our credit agreement and exercised our option 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 are 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 will be tested and in full force and effect beginning with the quarter ending 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 can fund through the waiver period 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 continue 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 are required to maintain minimum liquidity of at least $150,000.

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

Pursuant to the amendment:

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

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

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

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

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

Year Maturity

2023 $ 500,000

2024 1,175,000

2025 1,150,000

As of March 31, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.36%.

Our revolving credit facility is secured by 73 properties with an undepreciated book value of $1,560,880 as of March 31, 2023 to secure our obligations under the credit agreement.

As of March 31, 2023, we had no borrowings outstanding under our revolving credit facility.

Our term debt maturities (other than our revolving credit facility) as of March 31, 2023 were as follows:

Type Year Maturity

Senior unsecured notes 2024 $ 1,175,000

Senior unsecured notes 2025 1,150,000

Senior unsecured notes 2026 800,000

Senior unsecured notes 2027 850,000

Senior unsecured notes 2028 400,000

Net lease mortgage notes 2028 610,037

Senior unsecured notes 2029 425,000

Senior unsecured notes 2030 400,000

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

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

Our mortgage notes require monthly principal payments as described in Part I, Item 3 of this Quarterly Report on Form 10-Q.

On February 10, 2023, the Issuer issued $610,200 in aggregate principal amount of net lease mortgage notes.

The notes are non-recourse and secured by the assets of the Issuer, which includes 308 net lease properties with annual minimum rents of $65,381 and a gross book carrying value of $754,913 as of March 31, 2023.

The net proceeds from this issuance were $550,564 after initial purchaser discounts and offering costs.

We simultaneously announced the early redemption of our outstanding 4.50% Senior Notes due in 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 occurred March 8, 2023 using the proceeds from the net lease mortgage notes described.

The net lease mortgage notes are summarized as follows:

Note Class S&P Rating Principal Outstanding as of March 31, 2023

Coupon Rate Term Maturity

Class A AAA $ 304,873 5.15% 5 years February 2028

Class B AA 172,964 5.55% 5 years February 2028

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

Total / weighted average $ 610,037 5.60%

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.

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

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

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.

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

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the duration and severity of the COVID-19 pandemic, and 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.

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the impacts of the current, and possibly future, inflationary conditions, increasing or sustained high 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 September 30, 2022 consisted of $95,000 of outstanding borrowings under our revolving credit facility and $5,700,000 of publicly issued term debt.

Our debt obligations at March 31, 2023 consisted of $5,200,000 of publicly issued term debt and $610,037 aggregate principal amounts of mortgage notes secured by 308 net lease properties.

For further information regarding our indebtedness, see Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 ceasing to act as our business manager.

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

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

As of March 31, 2023, we believe we were in compliance with all of the covenants under our indentures and their supplements, net lease mortgage notes and our credit agreement.

Senior Notes Indenture Covenants

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

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of March 31, 2023:

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 157.1% Minimum 150%

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

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

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

Acceleration and Cross-Default

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Our remaining $3,950,000 of senior unsecured notes do not have the benefit of any guarantees.

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

Our non-guarantor subsidiaries are separate and

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

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

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

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

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

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

As of March 31, 2023 As of December 31, 2022

Real estate properties, net (1)

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Other liabilities 349,498 366,936

Nine Months Ended

September 30, 2022

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

Three Months Ended

March 31, 2023

(1) Real estate properties, net as of March 31, 2023 includes $189,891 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

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

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

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

Property and Operating Statistics (dollar amounts in thousands, except hotel statistics)

As of March 31, 2023, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 148 distinct brands across 22 industries.

Hotel Portfolio

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of Hotels Three Months Ended

September 30, Three Months Ended

September 30,

March 31, Three Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Full Service 22 7,145 63.2 % 52.8 % 10.4 Pts $ 154.00 $ 146.77 4.9 % $ 97.33 $ 77.49 25.6 %

Royal Sonesta (1)

Full Service 17 5,663 60.3 % 43.5 % 16.8 Pts 241.75 201.76 19.8 % 145.78 87.77 66.1 %

Sonesta Hotels & Resorts Full Service 22 7,149 56.9 % 51.9 % 5.0 pts $ 152.38 $ 144.09 5.8 % $ 86.70 $ 74.78 15.9 %

Royal Sonesta Full Service 17 5,663 47.3 % 36.8 % 10.5 pts 238.96 210.61 13.5 % 113.03 77.50 45.8 %

Radisson Hotel Full Service 5 1,149 65.4 % 57.5 % 7.9 pts 152.87 126.88 20.5 % 99.98 72.96 37.0 %

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Full Service Total/Average 48 14,886 53.9 % 46.3 % 7.6 pts 180.26 160.71 12.2 % 97.16 74.41 30.6 %

Sonesta Select (1)

Select Service 49 7,093 56.5 % 42.3 % 14.2 Pts 123.75 117.86 5.0 % 69.92 49.85 40.3 %

Sonesta Select Select Service 44 6,427 51.1 % 43.0 % 8.1 pts 118.88 108.16 9.9 % 60.75 46.51 30.6 %

Hyatt Place Select Service 17 2,107 63.9 % 58.6 % 5.3 pts 124.44 113.09 10.0 % 79.52 66.27 20.0 %

Courtyard Select Service 13 1,813 62.0 % 61.1 % 0.9 Pts 123.62 114.08 8.4 % 76.64 69.70 10.0 %

Select Service Total/Average 61 8,534 54.3 % 46.9 % 7.4 pts 120.50 109.69 9.9 % 65.43 51.44 27.2 %

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Sonesta Simply Suites Extended Stay 50 6,366 64.4 % 66.1 % (1.7) pts 90.85 79.55 14.2 % 58.51 52.58 11.3 %

Residence Inn Extended Stay 3 342 70.9 % 69.9 % 1.0 Pts 125.90 118.37 6.4 % 89.26 82.74 7.9 %

Extended Stay Total/Average 110 14,009 63.9 % 66.0 % (2.1) pts 111.16 98.76 12.6 % 71.03 65.18 9.0 %

Comparable Hotels Total/Average 219 37,429 57.7 % 53.9 % 3.8 pts $ 138.73 $ 121.77 13.9 % $ 80.05 $ 65.63 22.0 %

Comparable Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

Full Service 22 7,145 61.0 % 45.1 % 15.9 Pts $ 152.54 $ 131.82 15.7 % $ 93.05 $ 59.45 56.5 %

Royal Sonesta (1)

Full Service 16 5,291 52.2 % 34.7 % 17.5 Pts 236.88 183.22 29.3 % 123.65 63.58 94.5 %

Radisson Hotel Full Service 5 1,149 64.5 % 48.4 % 16.1 Pts 134.84 103.06 30.8 % 86.97 49.88 74.4 %

Crowne Plaza Full Service 1 495 54.6 % 46.6 % 8.0 Pts 130.66 110.77 18.0 % 71.34 51.62 38.2 %

Country Inn and Suites Full Service 3 430 65.5 % 48.8 % 16.7 Pts 138.52 110.59 25.3 % 90.73 53.97 68.1 %

Full Service Total/Average 47 14,510 58.0 % 41.8 % 16.2 Pts 177.76 142.92 24.4 % 103.10 59.74 72.6 %

Sonesta Select (1)

Select Service 49 7,093 50.9 % 35.5 % 15.4 Pts 117.67 104.08 13.1 % 59.89 36.95 62.1 %

Hyatt Place Select Service 17 2,107 68.1 % 59.9 % 8.2 Pts 118.99 99.56 19.5 % 81.03 59.64 35.9 %

Courtyard Select Service 13 1,813 56.0 % 50.6 % 5.4 Pts 118.86 101.10 17.6 % 66.56 51.16 30.1 %

Select Service Total/Average 79 11,013 55.0 % 42.6 % 12.4 Pts 118.18 102.28 15.5 % 65.00 43.57 49.2 %

Sonesta ES Suites (1)

Extended Stay 60 7,643 70.8 % 66.2 % 4.6 Pts 124.30 103.34 20.3 % 88.00 68.41 28.6 %

Sonesta Simply Suites Extended Stay 50 6,366 72.7 % 69.3 % 3.4 Pts 84.96 70.47 20.6 % 61.77 48.84 26.5 %

Residence Inn Extended Stay 3 342 66.0 % 56.8 % 9.2 Pts 119.52 109.29 9.4 % 78.88 62.08 27.1 %

Extended Stay Total/Average 113 14,351 71.5 % 67.4 % 4.1 Pts 106.61 88.57 20.4 % 76.23 59.70 27.7 %

Comparable Hotels Total/Average 239 39,874 62.0 % 51.2 % 10.8 Pts $ 133.41 $ 107.79 23.8 % $ 82.71 $ 55.19 49.9 %

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

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

For the three months ended March 31, 2023 and 2022, our comparable results excluded one hotel that had suspended operations during part of the periods presented.

All Hotels* No.

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of Hotels Three Months Ended

September 30, Three Months Ended

September 30,

March 31, Three Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Full Service 23 7,364 63.2 % 52.8 % 10.4 Pts $ 154.00 $ 146.77 4.9 % $ 97.33 $ 77.49 25.6 %

Royal Sonesta (1)

Full Service 17 5,663 60.3 % 43.5 % 16.8 Pts 241.75 201.76 19.8 % 145.78 87.77 66.1 %

Sonesta Hotels & Resorts Full Service 22 7,149 56.9 % 51.9 % 5.0 pts $152.38 $144.09 5.8 % $ 86.70 $ 74.78 15.9 %

Royal Sonesta Full Service 17 5,663 47.3 % 36.8 % 10.5 pts 238.96 210.61 13.5 % 113.03 77.50 45.8 %

Radisson Hotel Full Service 5 1,149 65.4 % 57.5 % 7.9 pts 152.87 126.88 20.5 % 99.98 72.96 37.0 %

2 unchanged sentences

Full Service Total/Average 48 14,886 53.9 % 46.3 % 7.6 pts 180.26 160.71 12.2 % 97.16 74.41 30.6 %

Sonesta Select (1)

Select Service 49 7,093 56.5 % 42.3 % 14.2 Pts 123.75 117.86 5.0 % 69.92 49.85 40.3 %

Sonesta Select Select Service 44 6,427 51.1 % 43.0 % 8.1 pts 118.88 108.16 9.9 % 60.75 46.51 30.6 %

Hyatt Place Select Service 17 2,107 63.9 % 58.6 % 5.3 pts 124.44 113.09 10.0 % 79.52 66.27 20.0 %

Courtyard Select Service 13 1,813 62.0 % 61.1 % 0.9 Pts 123.62 114.08 8.4 % 76.64 69.70 10.0 %

Select Service Total/Average 61 8,534 54.3 % 46.9 % 7.4 pts 120.50 109.69 9.9 % 65.43 51.44 27.2 %

1 unchanged sentence

Sonesta Simply Suites Extended Stay 51 6,464 63.7 % 65.1 % (1.4) pts 90.85 79.55 14.2 % 57.87 51.79 11.7 %

Residence Inn Extended Stay 3 342 70.9 % 69.9 % 1.0 Pts 125.90 118.37 6.4 % 89.26 82.74 7.9 %

Extended Stay Total/Average 111 14,107 63.6 % 65.5 % (1.9) pts 111.16 98.76 12.6 % 70.70 64.69 9.3 %

All Hotels Total/Average 220 37,527 57.6 % 53.7 % 3.9 pts $138.73 $121.77 13.9 % $ 79.91 $ 65.39 22.2 %

All Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

Full Service 23 7,364 61.0 % 45.1 % 15.9 Pts $ 152.54 $ 131.82 15.7 % $ 93.05 $ 59.45 56.5 %

Royal Sonesta (1)

Full Service 17 5,663 52.5 % 34.3 % 18.2 Pts 236.17 183.10 29.0 % 123.99 62.80 97.4 %

Radisson Hotel Full Service 5 1,149 64.5 % 48.4 % 16.1 Pts 134.84 103.06 30.8 % 86.97 49.88 74.4 %

Crowne Plaza Full Service 1 495 54.6 % 46.6 % 8.0 Pts 130.66 110.77 18.0 % 71.34 51.62 38.2 %

Country Inn and Suites Full Service 3 430 65.5 % 48.8 % 16.7 Pts 138.52 110.59 25.3 % 90.73 53.97 68.1 %

Full Service Total/Average 49 15,101 57.9 % 41.6 % 16.3 Pts 178.95 143.17 25.0 % 103.61 59.56 74.0 %

Sonesta Select (1)

Select Service 49 7,093 50.9 % 35.5 % 15.4 Pts 117.67 104.08 13.1 % 59.89 36.95 62.1 %

Hyatt Place Select Service 17 2,107 68.1 % 59.9 % 8.2 Pts 118.99 99.56 19.5 % 81.03 59.64 35.9 %

Courtyard Select Service 13 1,813 56.0 % 50.6 % 5.4 Pts 118.86 101.10 17.6 % 66.56 51.16 30.1 %

Select Service Total/Average 79 11,013 55.0 % 42.6 % 12.4 Pts 118.18 102.28 15.5 % 65.00 43.57 49.2 %

Simply ES Suites (1)

Extended Stay 60 7,643 70.8 % 66.2 % 4.6 Pts 124.30 103.34 20.3 % 88.00 68.41 28.6 %

Sonesta Simply Suites Extended Stay 51 6,464 71.9 % 69.4 % 2.5 Pts 84.96 70.35 20.8 % 61.09 48.82 25.1 %

Residence Inn Extended Stay 3 342 66.0 % 56.8 % 9.2 Pts 119.52 109.29 9.4 % 78.88 62.08 27.1 %

Extended Stay Total/Average 114 14,449 71.2 % 67.4 % 3.8 Pts 106.61 88.38 20.6 % 75.91 59.57 27.4 %

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

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

* Results of all hotels owned as of March 31, 2023.

Excludes the results of hotels sold during the periods presented.

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

Net Lease Portfolio

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

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

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

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

As of March 31, 2023, our net lease properties were 97.4% occupied and we had 27 properties available for lease.

During the three months ended March 31, 2023, we entered into lease renewals for 11,577 rentable square feet (two properties) at weighted (by rentable square feet) average rents that were 3.1% above the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 5.1 years.

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

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

We also entered into a new lease for 3,671 rentable square feet for rent that was 38.8% above the prior rent for the same space.

The lease term for this lease was 10.2 years.

As of March 31, 2023, our net lease tenants operated across more than 139 brands.

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

of Buildings Investment (1)

12 unchanged sentences

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

Regal Cinemas 6 44,476 0.9 % 3,736 1.0 % 1.19x

Pizza Hut 40 45,285 0.9 % 3,401 0.9 % 1.94 x

426 1,242,703 24.3 % 83,820 22.7 % 3.60 x

1 unchanged sentence

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

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

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

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

1 unchanged sentence

(3) See page 23 for our definition of coverage.

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

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

(4) Consists of 129 distinct brands with an average investment of $2,917 and average annual minimum rent of $197 per property.

As of March 31, 2023, our top ten net lease tenants based on annualized minimum rent are listed below.

Tenant Brand Affiliation No.

4 unchanged sentences

Minimum Rent Coverage (3)

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

TravelCenters of America Inc.

TravelCenters of America / Petro Stopping Centers 177 $ 3,310,415 64.8 % $ 246,110 66.6 % 2.67x (4)

Universal Pool Co., Inc.

9 unchanged sentences

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

Regal Cinemas, Inc.

Regal Cinemas 6 44,476 0.9 % 3,736 1.0 % 0.70x

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,247 0.9 % 5.75x

Capitol Racquet Sports, Inc.

Courthouse Athletic Club 4 39,688 0.8 % 1,878 0.5 % 1.35x

Subtotal, top 10 306 3,901,351 76.4 % 287,660 77.9 % 2.84x

2 unchanged sentences

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

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

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

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

5 unchanged sentences

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 applicable base years).

TA's remaining deferred rent obligation of $8,807 is being paid in quarterly installments of $4,404 through January 31, 2023.

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

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

of Buildings Investment (1)

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

(5) Consists of 169 tenants with an average investment of $2,629 and average annual minimum rent of $179 per property.

As of March 31, 2023, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S.

of Properties Investment (1)

Percent of Total Investment Annualized

8 unchanged sentences

Grocery Stores 19 129,152 2.5% 9,223 2.5 % 4.05 x

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

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

Home Goods and Leisure 20 120,702 2.4% 9,838 2.7 % 6.01 x

Automotive Equipment & Services 64 107,054 2.1% 7,665 2.1 % 4.36 x

Medical, Dental Office 70 102,494 2.0% 8,268 2.2 % 2.41 x

Automotive Dealers 8 62,550 1.2% 4,956 1.3 % 5.73 x

2 unchanged sentences

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

Vacant 21 43,821 0.9% — — % — x

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

Building Materials 29 33,280 0.7% 2,829 0.8 % 7.39 x

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

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

Miscellaneous Manufacturing 5 24,148 0.5% 1,691 0.5 % 18.01 x

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

2 unchanged sentences

Dollar Stores 3 2,971 0.1% 189 0.1 % 2.69 x

Other 5 27,245 0.5% 3,142 0.8 % 5.97 x

Vacant 27 67,765 1.3% — — % — x

Total 765 $ 5,107,970 100.0% $ 369,756 100.0% 2.98 x

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

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

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

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

1 unchanged sentence

(3) See page 23 for our definition of coverage.

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

As of March 31, 2023, lease expirations at our net lease properties by year are as follows:

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

21 unchanged sentences

2044 — — 0.0% 99.0%

2045 63,490 3,693 1.0% 100.0%

Total 12,974,047 $ 369,756 100%

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

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

As of March 31, 2023, shown below is the list of our top ten states where our net lease properties are located.

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

6 unchanged sentences

Arizona 476,651 16,575 4.5%

Indiana 637,239 16,421 4.4%

Florida 529,040 16,142 4.4%

Pennsylvania 543,959 15,758 4.3%

Indiana 612,239 15,239 4.1%

New Mexico 246,478 11,184 3.0%

Other 6,425,909 165,116 44.6%

22 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.

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

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

2022 2021 2022 2021

Our calculations of FFO and Normalized FFO for the three months ended March 31, 2023 and 2022 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended March 31,

Net income (loss) $ 25,950 $ (119,822)

1 unchanged sentence

Loss on asset impairment (1)

1,172 — 9,720 2,110

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

Gain on sale of real estate, net (2)

(41,898) (5,548)

Unrealized gains on equity securities, net (3)

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

(49,430) 10,260

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

1,103 369 2,674 1,868

FFO 35,894 (4,831)

Transaction related costs (5)

— 3,149 1,920 28,934

Loss on early extinguishment of debt (6)

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

61 256 899 1,619

Normalized FFO $ 37,146 $ (3,409)

6 unchanged sentences

Distributions declared per share $ 0.20 $ 0.01

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

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

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

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

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

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

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

(1) We recorded a loss on asset impairment of $5,500 during the three months ended March 31, 2022 to reduce the carrying value of 25 hotels to their estimated fair value less costs to sell.

(2) We recorded a $41,898 net gain on sale of real estate during the three months ended March 31, 2023 in connection with the sale of 18 hotels.

We recorded a $5,548 gain on sale of real estate during the three months ended March 31, 2022 in connection with the sale of five hotels and two net lease properties.

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

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

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

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

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

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

(5) Transaction related costs for the three months ended March 31, 2023 of $887 primarily consisted of costs related to potential acquisitions.

Transaction related costs for the three months ended March 31, 2022 of $1,177 primarily consisted of expenses incurred related to our hotel rebranding activities.

(6) We recorded a $44 loss on extinguishment of debt during the three months ended March 31, 2023 related to the write off of deferred financing costs relating to our repayment of $500,000 of unsecured senior notes due in June 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis