What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-08 · 291 added, 164 removed, 356 unchanged (56% of the section changed)

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

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

As of June 30, 2023, we owned 984 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

In response to inflationary pressures, the U.S.

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

Federal Reserve has increased the federal funds rate multiple times since the beginning of 2022 and has signaled that further increases may occur.

These inflationary pressures and rising interest rates in the United States and globally have given rise to economic uncertainty 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.

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Management Agreements and Leases .

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

At June 30, 2023, we owned 221 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.

At June 30, 2023, we owned 763 service oriented properties leased to 173 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 March 31, 2023, we owned 220 hotels.

In the three months ended March 31, 2023, the U.S.

As of June 30, 2023, we owned 221 hotels.

In the three and six months ended June 30, 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 March 31,

2023 2022 Change

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

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 Change 2023 2022 Change

of hotels 221 247 (26) 221 247 (26)

of rooms or suites 37,777 41,166 (3,389) 37,777 41,166 (3,389)

Occupancy 57.6 % 53.3 % 4.3 pts

Occupancy 67.6 % 66.6 % 1.0 pts 62.7 % 60.6 % 2.1 pts

ADR $ 144.32 $ 138.43 4.3 % $ 142.74 $ 134.11 6.4 %

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

For the three and six months ended June 30, 2023 and 2022, our comparable results exclude two hotels.

One of the hotels was not owned for the entirety of the periods and the other 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 March 31,

2023 2022 Change

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

2023 2022 Change 2023 2022 Change

Comparable Hotels

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of rooms or suites 37,429 37,429 — 37,429 37,429 —

Occupancy 57.7 % 53.9 % 3.8 pts

Occupancy 67.7 % 67.4 % 0.3 pts 62.7 % 60.7 % 2.0 pts

ADR $ 143.38 $ 140.06 2.4 % $ 141.25 $ 132.01 7.0 %

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Net Lease Portfolio .

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.

As of June 30, 2023, we owned 763 service oriented retail properties with 13,469,478 square feet leased to 173 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $375,781.

Our net lease properties were 96.1% occupied as of June 30, 2023 with a weighted (by annual minimum rent) lease term of 9.3 years, operating under 134 brands in 21 distinct industries.

TA is our largest tenant.

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.

On May 15, 2023, BP completed the TA Merger and we amended our TA leases.

We received $379,292 in cash as part of the transaction, including $188,000 of prepaid rent, $101,892 for outstanding TA common shares we owned and $89,400 for certain tradenames and trademarks associated with TA’s businesses we owned.

As of June 30, 2023, we leased 176 of our travel centers to TA under five leases that expire in 2033 and require annual minimum rents of $254,000, and BP guarantees payment under these leases, subject to a cap.

TA receives an annual credit of $25,000 as a result of the prepaid rent.

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

For the Three Months Ended March 31,

Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022

For the Three Months Ended June 30,

Increase % Increase

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Other operating income:

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

(Loss) gain on sale of real estate, net (62) 38,851 (38,913) n/m

Loss on equity securities, net (593) (10,059) (9,466) (94.1) %

Interest income 3,468 1,021 2,447 n/m

Interest expense (82,503) (89,820) (7,317) (8.1) %

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

Loss on early extinguishment of debt (238) (791) 553 69.9 %

(Loss) income before income taxes and equity in losses of an investee (6,548) 9,630 (16,178) 168.0 %

Income tax expense (5,247) (473) (4,774) n/m

Equity in earnings of an investee 517 2,193 (1,676) (76.4) %

Net (loss) income $ (11,278) $ 11,350 $ (22,628) n/m

Weighted average shares outstanding (basic and diluted) 164,902 164,677 225 0.1 %

Net (loss) income per common share (basic and diluted) $ (0.07) $ 0.07 $ (0.14) n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Hotel operating revenues.

The decrease in hotel operating revenues is primarily a result of our sale of certain hotels since April 2022 ($40,435), partially offset by higher ADR and RevPAR at certain of our hotels ($25,778).

Additional operating statistics of our hotels are included in the table on page 31.

Rental income.

The increase in rental income is primarily a result of percentage rent income recognized under our TA leases in the 2023 period.

Hotel operating expenses.

The decrease in hotel operating expenses is primarily a result of our sale of certain hotels since April 2022 ($37,900), partially offset by an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($15,006), and an increase in rooms, food and beverage, marketing and sales expenses, management fees and other operating expenses ($7,290).

Other operating expenses.

The increase in other operating expenses is primarily the result of higher operating expenses at certain net lease properties ($1,232), partially offset by our sale of certain net lease properties since April 1, 2022 ($39).

Depreciation and amortization - hotels.

The decrease in depreciation and amortization - hotels is primarily a result of our sale of certain hotels and certain of our depreciable assets becoming fully depreciated ($4,397), partially offset by depreciation and amortization related to capital expenditures made since April 1, 2022 ($1,968).

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 ($3,286) and our sale of certain net lease properties since April 1, 2022 ($365), partially offset by depreciation and amortization related to capital expenditures made since April 1, 2022 ($131).

General and administrative.

The decrease in general and administrative costs is primarily due to a decrease in business management fees ($1,018), partially offset by an increase in share grant expense ($639) and other professional fees ($134).

Transaction related costs .

Transaction related costs for the three months ended June 30, 2023 primarily consisted of costs related to hotel rebranding activity and the demolition of certain vacant properties.

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

Loss on asset impairment, net.

We recorded a $9,005 loss on asset impairment, net during the three months ended June 30, 2023 to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.

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

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

We recorded a $62 net loss on sale of real estate during the three months ended June 30, 2023 in connection with the sale of two net lease properties.

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

Loss on equity securities, net.

Loss on equity securities, net represents the adjustment to the carrying value of our former investment in shares of TA common stock to its fair value.

Interest income.

The increase in interest income is 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 2023 period.

Loss on early extinguishment of debt.

We recorded a $238 loss on early extinguishment of debt due to the write off of certain deferred financing costs relating to the amendment of our revolving credit facility in the 2023 period.

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

Income tax expense.

The increase in income tax expense is primarily due to increases in state and foreign sourced income tax expenses during the 2023 period.

Equity in earnings of an investee.

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

Net (loss) income.

Our net (loss) income and net (loss) income per common share (basic and diluted) each changed in the 2023 period compared to the 2022 period primarily due to the revenue and expense changes discussed above.

Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022

For the Six Months Ended June 30,

Increase % Increase

2023 2022 (Decrease) (Decrease)

Hotel operating revenues $ 739,123 $ 716,390 $ 22,733 3.2 %

Rental income 193,865 193,151 714 0.4 %

Total revenues 932,988 909,541 23,447 2.6 %

Hotel operating expenses 608,666 615,537 (6,871) (1.1) %

Other operating expenses 8,277 5,650 2,627 46.5 %

Depreciation and amortization - hotels 106,834 112,040 (5,206) (4.6) %

Depreciation and amortization - net lease properties 87,776 92,593 (4,817) (5.2) %

Total depreciation and amortization 194,610 204,633 (10,023) (4.9) %

General and administrative 23,331 24,452 (1,121) (4.6) %

Transaction related costs 1,818 1,920 (102) (5.3) %

Loss on asset impairment, net 9,005 8,548 457 5.3 %

Total expenses 845,707 860,740 (15,033) (1.7) %

Other operating income:

Gain on sale of real estate, net 41,836 44,399 (2,563) (5.8) %

Gain (loss) on equity securities, net 48,837 (20,319) 69,156 n/m

Interest income 6,254 1,294 4,960 n/m

Interest expense (164,083) (182,164) (18,081) (9.9) %

Loss on early extinguishment of debt (282) (791) 509 64.3 %

Income (loss) before income taxes and equity in losses of an investee 19,843 (108,780) 128,623 (118.2) %

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 %

Income tax expense (1,467) (1,168) (299) (25.6) %

Equity in (losses) earnings of an investee (3,704) 1,476 (5,180) n/m

Net income (loss) $ 14,672 $ (108,472) $ 123,144 n/m

Weighted average shares outstanding (basic and diluted) 164,884 164,672 212 0.1 %

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.

Net income (loss) per common share (basic and diluted) $ 0.09 $ (0.66) $ 0.75 n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2023, compared to the six months ended June 30, 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 2023 period ($72,500), partially offset by the sale of certain hotels since January 1, 2022 ($35,110).

The increase in hotel operating revenues is primarily as a result of higher occupancies and average rates at certain of our hotels in the 2023 period ($100,226), partially offset by our sale of certain hotels since January 1, 2022 ($77,493).

Additional operating statistics of our hotels are included in the table on page 31.

Rental income.

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

The increase in rental income is primarily a result of percentage rent income recognized at certain of our TA properties ($3,507), partially offset by an increase in reserves for uncollectable amounts for certain tenants in the 2023 period ($2,793).

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 ($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).

The decrease in hotel operating expenses is primarily a result of our sale of certain hotels since January 1, 2022 ($73,895), partially offset by an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($43,670), an increase in rooms, food and beverage, marketing and sales expenses, management fees and other operating expenses ($23,844).

Other operating expenses.

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.

The increase in other operating expenses is primarily the result of higher operating expenses at certain net lease properties ($2,847), partially offset by our sale of certain net lease properties since January 1, 2022 ($220).

Depreciation and amortization - hotels.

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).

The decrease in depreciation and amortization - hotels is primarily a result of certain of our depreciable assets becoming fully depreciated since January 1, 2022 ($4,644) and our sale of certain hotels ($4,227), partially offset by depreciation and amortization related to capital expenditures made since January 1, 2022 ($3,665).

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).

The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets being fully depreciated since January 1, 2022 and our sale of certain net lease properties since January 1, 2022 ($5,242), partially offset by depreciation and amortization related to capital expenditures made since January 1, 2022 ($425).

General and administrative.

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).

The decrease in general and administrative costs is primarily due to a decrease in business management fees ($2,511), partially offset by an increase in other professional fees ($699) and share grant expenses ($691).

Transaction related cos ts.

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.

Transaction related costs for the six months ended June 30, 2023 are primarily related to hotel rebranding activity, demolition of certain vacant properties and potential acquisitions.

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

Loss on asset impairment, net.

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.

We recorded a $9,005 loss on asset impairment, net during the six months ended June 30, 2023 to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.

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

Gain on sale of real estate, 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.

We recorded a $41,836 net gain on sale of real estate in the 2023 period in connection with the sale of 18 hotels and two net lease properties.

We recorded a $44,399 net gain on sale of real estate in the 2022 period in connection with the sales of 56 hotels and 13 net lease properties.

Gain (loss) on equity securities, net.

Gain (loss) on equity securities, net represents the adjustment to the carrying value of our former investment in shares of TA common stock to its fair value.

Interest income.

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Interest expense.

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

The decrease in interest expense is due to lower outstanding debt balances, partially offset by higher weighted average interest rates in the 2022 period.

Loss on early extinguishment of debt.

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.

We recorded a $282 loss on early extinguishment of debt in connection with our redemption of certain senior unsecured notes and the write off of certain deferred financing costs relating to the amendment of our revolving credit facility in the 2023 period.

Income tax expense.

The increase in income tax expense is primarily due to an increase in our foreign sourced income tax expense during the 2023 period, partially offset by lower net state income tax expense.

Equity in (losses) earnings of an investee.

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

Net income (loss).

Our net income (loss) and net income (loss) per common share (basic and diluted) each changed 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

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.

As of June 30, 2023, all 221 of our hotels were managed by four hotel operating companies.

Our 763 net lease properties were leased to 173 tenants as of June 30, 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 March 31, 2023, our hotel managers included Sonesta (194 hotels), Hyatt (17 hotels), Radisson (eight hotels), and IHG (one hotel).

As of June 30, 2023, our hotel managers included Sonesta (195 hotels), Hyatt (17 hotels), Radisson (eight hotels), and IHG (one hotel).

TA is our largest tenant (176 travel centers).

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 recorded reserves for uncollectable amounts and decreased rental income by $1,813 and $5,353 for the three and six months ended June 30, 2023, respectively, based on our assessment of the collectability of rents.

We reduced our reserves for uncollectable amounts and increased rental income by $160 and $667 for the three and six months ended June 30, 2022, respectively, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $11,187 and $7,697 as of June 30, 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.

Tenants with no minimum rent required under the lease are excluded.

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.

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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 net lease properties generated coverage of 2.94x and 2.80x as of June 30, 2023 and 2022, respectively.

Our Operating Liquidity and Capital Resources

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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):

Three Months Ended March 31,

Six Months Ended June 30,

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 $ 450,625 $ 700,105

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.

The increase in cash provided by operating activities for the 2023 period compared to the prior year period is primarily due to $188,000 of prepaid rent received from TA, higher returns earned from our hotel portfolio and lower interest expense in the 2023 period.

The decrease in cash flows provided by investing activities in the 2023 period compared to the 2022 period is primarily due to lower proceeds from the sale of real estate during the 2023 period, partially offset by proceeds from the TA Merger.

The decrease in cash flows used in financing activities in the 2023 period compared to the prior year is primarily due to higher debt repayments made in the 2022 period.

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

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 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.

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

During the six months ended June 30, 2023, we funded $59,740 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $160,000 for capital improvements to certain hotels in the next twelve months 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 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.

However, tenants under these leases are required to maintain the leased properties, including structural and non-structural components.

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 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.

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.

During the six months ended June 30, 2023, certain of our hotel managers deposited $3,662 to these accounts and spent $3,039 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of June 30, 2023, there was $4,856 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 and tenants under these leases are generally required to maintain the leased properties, including structural and non-structural components.

We may provide tenant improvement allowances to tenants in certain cases or may develop sites with the intent to lease them.

During the six months ended June 30, 2023, we funded $2,287 for capital improvements to our net lease properties.

As of June 30, 2023, we had $1,180 of unspent leasing-related obligations related to certain net lease tenants.

During the six months ended June 30, 2023, we sold 18 hotels with 2,526 rooms for an aggregate sales price of $157,230, excluding closing costs and two net lease properties with 2,384 square feet for an aggregate sales price of $620, excluding closing costs.

As of August 4, 2023, we have entered into agreements to sell two net lease properties with 39,133 square feet for an aggregate sales price of $3,725.

These pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

We continue to market 20 net lease properties with 358,419 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 three months ended March 31, 2023, we declared and paid regular quarterly distributions to common shareholders using cash on hand as follows:

BP completed its acquisition of TA on May 15, 2023.

We received $379,293 in cash as part of this transaction, including $188,000 in prepaid rent from TA, $101,892 in merger consideration for the outstanding TA common shares we owned, and $89,400 for certain tradenames and trademarks associated with TA’s business we owned.

During the three months ended June 30, 2023, we purchased one hotel in Miami, FL with 250 rooms for a sales price of $165,400, excluding closing costs using cash on hand.

During the six months ended June 30, 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

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 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:

April 13, 2023 April 24, 2023 May 18, 2023 0.20 33,089

$ 0.40 $ 66,179

On July 13, 2023, we declared a regular quarterly distribution to common shareholders of record as of July 24, 2023 of $0.20 per share, or approximately $33,089.

We expect to pay this amount on or about August 17, 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 a $650,000 secured revolving credit facility which is governed by the amended and restated credit agreement we entered into on June 29, 2023.

This new facility replaces our prior $800,000 secured revolving credit facility, which had a maturity date of July 15, 2023, and is available for general business purposes, including acquisitions.

We can borrow, repay, and reborrow funds available under the new facility until maturity and no principal repayments are due until maturity.

The maturity date of the new facility is June 29, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further extend the stated maturity date of the new facility by two additional six-month periods.

Interest payable on drawings under the new facility is based on SOFR plus a margin ranging from 1.50% to 3.00% based on our leverage ratio, as defined in our credit agreement, which was 2.50% as of June 30, 2023.

Our obligations under the new facility are secured by 69 properties, including 66 hotels and three net lease properties, with an undepreciated book value of $1,520,935 as of June 30, 2023.

We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding.

As of June 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.64%.

We had no borrowings outstanding under either the new or prior facility for either the three or six months ended June 30, 2023.

The weighted average annual interest rate for borrowings under the new and prior facility was 3.25% and 3.05%, respectively, for the three and six months ended June 30, 2022.

Our term debt maturities (other than our revolving credit facility) as of June 30, 2023 were as follows:

Type Year Maturity

10 unchanged sentences

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 notes are non-recourse and secured by the assets of the Issuer, which includes 308 net lease properties with annual minimum rents of $65,490 and a gross book carrying value of $754,916 as of June 30, 2023.

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

2 unchanged sentences

The net lease mortgage notes are summarized as follows:

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

Note Class S&P Rating Principal Outstanding as of June 30, 2023

Coupon Rate Term Maturity

18 unchanged sentences

Debt Covenants

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.

Our debt obligations at June 30, 2023 consisted of $5,200,000 of publicly issued term debt and $609,548 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.

2 unchanged sentences

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.

As of June 30, 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 March 31, 2023:

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of June 30, 2023:

Actual Results Covenant Requirement

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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.

As a result, these notes and the related guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

As a result, these notes and the related guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not

guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

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 March 31, 2023 As of December 31, 2022

As of June 30, 2023 As of December 31, 2022

Real estate properties, net (1)

5 unchanged sentences

Other liabilities 563,592 366,936

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.

Six Months Ended

June 30, 2023

(1) Real estate properties, net as of June 30, 2023 includes $189,943 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.

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.

As of June 30, 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 143 distinct brands across 22 industries.

Hotel Portfolio

6 unchanged sentences

of Hotels Three Months Ended

March 31, Three Months Ended

June 30, Three Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

12 unchanged sentences

Comparable Hotels Total/Average 219 37,429 67.7 % 67.4 % 0.3 Pts $ 143.38 $ 140.06 2.4 % $ 97.07 $ 94.40 2.8 %

Comparable Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Hotels & Resorts Full Service 22 7,149 62.6 % 59.9 % 2.7 Pts $ 154.48 $ 151.74 1.8 % $ 96.70 $ 90.89 6.4 %

Royal Sonesta Full Service 17 5,663 55.5 % 48.4 % 7.1 Pts 243.26 232.60 4.6 % 135.01 112.58 19.9 %

Radisson Hotel Full Service 5 1,149 65.1 % 63.8 % 1.3 Pts 148.94 132.73 12.2 % 96.96 84.68 14.5 %

Crowne Plaza Full Service 1 495 63.9 % 52.4 % 11.5 Pts 140.18 128.02 9.5 % 89.58 67.08 33.5 %

Country Inn and Suites Full Service 3 430 65.3 % 61.1 % 4.2 Pts 130.47 125.08 4.3 % 85.20 76.42 11.5 %

Full Service Total/Average 48 14,886 60.2 % 55.5 % 4.7 Pts 184.17 175.48 5.0 % 110.87 97.39 13.8 %

Sonesta Select Select Service 44 6,427 54.7 % 49.0 % 5.7 Pts 118.57 115.08 3.0 % 64.86 56.39 15.0 %

Hyatt Place Select Service 17 2,107 69.1 % 66.7 % 2.4 Pts 125.49 117.73 6.6 % 86.71 78.53 10.4 %

Select Service Total/Average 61 8,534 58.2 % 53.4 % 4.8 Pts 120.60 115.90 4.1 % 70.19 61.89 13.4 %

Sonesta ES Suites Extended Stay 60 7,643 67.5 % 69.9 % (2.4)Pts 129.96 121.21 7.2 % 87.72 84.73 3.5 %

Sonesta Simply Suites Extended Stay 50 6,366 69.1 % 71.3 % (2.2)Pts 90.69 82.94 9.3 % 62.67 59.14 6.0 %

Extended Stay Total/Average 110 14,009 68.2 % 70.6 % (2.4)Pts 112.01 103.79 7.9 % 76.39 73.28 4.2 %

Comparable Hotels Total/Average 219 37,429 62.7 % 60.7 % 2.0 Pts $ 141.25 $ 132.01 7.0 % $ 88.56 $ 80.13 10.5 %

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

For the three and six months ended June 30, 2023 and 2022, our comparable results exclude two hotels from our comparable results.

One of the hotels was not owned for the entirety of the periods and the other suspended operations during part of the periods presented.

All Hotels* No.

2 unchanged sentences

of Hotels Three Months Ended

March 31, Three Months Ended

June 30, Three Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

12 unchanged sentences

All Hotels Total/Average 221 37,777 67.6 % 67.2 % 0.4 Pts $144.32 $141.77 1.8 % $ 97.56 $ 95.27 2.4 %

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

Excludes the results of hotels sold during the periods presented.

All Hotels* No.

of Rooms or Suites Occupancy ADR RevPAR

Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Hotels & Resorts Full Service 23 7,399 62.7 % 59.8 % 2.9 Pts $161.73 $162.18 (0.3) % $ 101.40 $ 96.98 4.6 %

Royal Sonesta Full Service 17 5,663 55.5 % 48.4 % 7.1 Pts 243.26 232.60 4.6 % 135.01 112.58 19.9 %

Radisson Hotel Full Service 5 1,149 65.1 % 63.8 % 1.3 Pts 148.94 132.73 12.2 % 96.96 84.68 14.5 %

Crowne Plaza Full Service 1 495 63.9 % 52.4 % 11.5 Pts 140.18 128.02 9.5 % 89.58 67.08 33.5 %

Country Inn and Suites Full Service 3 430 65.3 % 61.1 % 4.2 Pts 130.47 125.08 4.3 % 85.20 76.42 11.5 %

Full Service Total/Average 49 15,136 60.3 % 55.6 % 4.7 Pts 187.29 180.46 3.8 % 112.94 100.34 12.6 %

Sonesta Select Select Service 44 6,427 54.7 % 49.0 % 5.7 Pts 118.57 115.08 3.0 % 64.86 56.39 15.0 %

Hyatt Place Select Service 17 2,107 69.1 % 66.7 % 2.4 Pts 125.49 117.73 6.6 % 86.71 78.53 10.4 %

Select Service Total/Average 61 8,534 58.2 % 53.4 % 4.8 Pts 120.60 115.90 4.1 % 70.19 61.89 13.4 %

Simply ES Suites Extended Stay 60 7,643 67.5 % 69.9 % (2.4)Pts 129.96 121.21 7.2 % 87.72 84.73 3.5 %

Sonesta Simply Suites Extended Stay 51 6,464 68.4 % 70.5 % (2.1)Pts 90.69 82.94 9.3 % 62.03 58.47 6.1 %

Extended Stay Total/Average 111 14,107 67.9 % 70.2 % (2.3)Pts 112.01 103.79 7.9 % 76.05 72.86 4.4 %

All Hotels Total/Average 221 37,777 62.7 % 60.6 % 2.1 Pts $142.74 $134.11 6.4 % $ 89.50 $ 81.27 10.1 %

* Results of all hotels owned as of June 30, 2023.

Excludes the results of hotels sold during the periods presented and includes data for one hotel for periods prior to when we acquired it.

Net Lease Portfolio

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.

As of June 30, 2023, our net lease properties were 96.1% occupied and we had 30 properties available for lease.

During the six months ended June 30, 2023, we entered into lease renewals for 5,347,670 rentable square feet (183 properties) at weighted (by rentable square feet) average rents that were 9.6% above the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 10.2 years.

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.

We also entered into new leases for 5,911 rentable square feet (two properties) for rent that was 116.3% above the prior rent for the same space.

The weighted (by rentable square feet) average lease term for these leases was 8.2 years.

Generally, lease agreements with our net lease tenants require payment of minimum rent to us.

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

Annualized minimum rent represents cash amounts and excludes adjustments, if any, necessary to record scheduled rent changes on a straight line basis or any expense reimbursement.

Annualized minimum rent excludes the impact of rents prepaid by TA.

As of June 30, 2023, our net lease tenants operated across more than 134 brands.

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

of Buildings Investment (1)

Percent of Total Investment Annualized

Minimum Rent (2)

of Properties Investment (1)

Percent of Total Investment Annualized Minimum Rent (2)

Percent of Total Annualized

Minimum Rent Coverage (3)

TravelCenters of America 133 $ 2,289,189 44.8 % $ 169,067 45.7 % 2.81 x

TravelCenters of America Inc.

132 $ 2,258,977 44.5 % $ 173,403 46.1 % 2.77 x

Petro Stopping Centers 44 1,015,156 20.0 % 80,597 21.4 % 2.35 x

10 unchanged sentences

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

(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.

Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight line basis, or any reimbursement of expenses paid by us.

(2) See page 33 for our definition of annualized minimum rent.

(3) See page 26 for our definition of coverage.

(4) Consists of 124 distinct brands with an average investment of $2,945 and average annual minimum rent of $193 per property.

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

As of June 30, 2023, our top ten net lease tenants based on annualized minimum rent are listed below.

Tenant Brand Affiliation No.

of Buildings Investment (1)

of Properties Investment (1)

Percent of Total Investment Annualized

22 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 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.

(2) See page 33 for our definition of annualized minimum rent.

(3) See page 26 for our definition of coverage.

(4) TA is our largest tenant.

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 five master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.

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 applicable base years).

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.

We lease 176 travel centers (132 under the TravelCenters of America brand and 44 under the Petro Stopping Centers brand) to a subsidiary of TA under five master leases that expire in 2033.

TA has five renewal options for 10 years each for all of the travel centers.

BP Corporation North America Inc.

guarantees payments under each of the five master leases, limited by an initial aggregate cap of approximately $3,040,000.

Annualized minimum rent excludes the impact of rents prepaid by TA.

(5) Consists of 163 tenants with an average investment of $2,654 and an average annual minimum rent of $175 per property.

As of June 30, 2023, our net lease tenants operated across 21 distinct industries within the service oriented retail sector of the U.S.

of Properties Investment (1)

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Restaurants-Quick Service 213 290,151 5.7% 19,727 5.2 % 3.22 x

Restaurants-Casual Dining 53 192,320 3.8% 11,940 3.2 % 2.43 x

Health and Fitness 13 186,362 3.7% 11,026 2.9 % 2.00 x

Restaurants-Casual Dining 51 184,262 3.6% 11,465 3.0 % 2.73 x

Movie Theaters 18 160,055 3.2% 9,742 2.6 % 1.52 x

1 unchanged sentence

Home Goods and Leisure 20 120,708 2.4% 9,699 2.6 % 5.55 x

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

Automotive Equipment and Services 64 107,054 2.1% 7,691 2.0 % 4.34 x

Medical, Dental Office 70 103,849 2.0% 8,362 2.2 % 2.95 x

14 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 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.

(2) See page 33 for our definition of annualized minimum rent.

(3) See page 26 for our definition of coverage.

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

2023 209,044 $ 1,560 0.4% 0.4%

As of June 30, 2023, lease expirations at our net lease properties by year are as follows:

Square Feet Annualized Minimum Rent Expiring (2)

Percent of Total Annualized Minimum Rent Expiring Cumulative Percent of Total Annualized Minimum Rent Expiring

2023 93,458 $ 838 0.2% 0.2%

22 unchanged sentences

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

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

(2) See page 33 for our definition of annualized minimum rent.

As of June 30, 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.

State Square Feet Annualized Minimum Rent Percent of Total Annualized Minimum Rent

State Square Feet Annualized Minimum Rent (1)

Percent of Total Annualized Minimum Rent

Texas 1,176,854 $ 1,176,854 9.0%

Illinois 1,010,047 26,231 7.1%

Ohio 1,339,304 1,297,487 7.1%

Illinois 1,010,047 1,010,047 7.7%

California 399,045 399,045 3.1%

Georgia 597,248 597,248 4.6%

Arizona 476,651 16,575 4.5%

Florida 529,040 529,040 4.1%

Pennsylvania 543,959 15,758 4.3%

Arizona 476,651 476,651 3.7%

Indiana 654,927 577,916 4.4%

Pennsylvania 544,003 486,460 3.7%

New Mexico 246,478 246,478 1.9%

1 unchanged sentence

Total 13,469,478 $ 13,044,274 97.1%

(1) See page 33 for our definition of annualized minimum rent.

Related Person Transactions

11 unchanged sentences

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

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

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

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

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

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

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

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs.

1 unchanged sentence

We calculate FFO and Normalized FFO as shown below.

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

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

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

2 unchanged sentences

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

Our calculations of FFO and Normalized FFO for the three 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)

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 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 June 30, For the Six Months Ended June 30,

2023 2022 2023 2022

Net (loss) income $ (11,278) $ 11,350 $ 14,672 $ (108,472)

Depreciation and amortization expense 94,571 100,520 194,610 204,633

Loss on asset impairment (1)

Gain on sale of real estate, net (2)

Loss on asset impairment, net (1)

9,005 3,048 9,005 8,548

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

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

62 (38,851) (41,836) (44,399)

Loss (gain) on equity securities, net (3)

593 10,059 (48,837) 20,319

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

798 905 2,031 1,571

FFO 93,751 87,031 129,645 82,200

Transaction related costs (5)

931 743 1,818 1,920

Loss on early extinguishment of debt (6)

238 791 282 791

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

207 593 528 838

Normalized FFO $ 95,127 $ 89,158 $ 132,273 $ 85,749

2 unchanged sentences

Basic and diluted per common share amounts:

Net income (loss) $ 0.16 $ (0.73)

Net (loss) income $ (0.07) $ 0.07 $ 0.09 $ (0.66)

FFO $ 0.57 $ 0.53 $ 0.79 $ 0.50

1 unchanged sentence

Distributions declared per share $ 0.20 $ 0.01 $ 0.40 $ 0.02

(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.

(1) We recorded a net loss on asset impairment of $9,005 to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell during the three months and six months ended June 30, 2023, a net loss on impairment of $3,048 to reduce the carrying value of two hotels and four net lease properties to their estimated fair value less costs to sell during the three months ended June 30, 2022, and a net loss on impairment of $8,548 to reduce the carrying value of 25 hotels and four net lease properties to their estimated fair value less costs to sell during the six months ended June 30, 2022.

(2) We recorded a $62 net loss on sale of real estate during the three months ended June 30, 2023 in connection with the sale of two net lease properties, a $38,851 net gain on sale of real estate during the three months ended June 30, 2022 in connection with the sale of 52 hotels and 11 net lease properties, a $41,836 net gain on sale of real estate during the six months ended June 30, 2023 in connection with the sale of 18 hotels and two net lease properties and a $44,399 net gain on sale of real estate during the six months ended June 30, 2022 in connection with the sale of 56 hotels and 13 net lease properties.

(3) Loss (gain) on equity securities, net represents the adjustment to the carrying value of our former investment in shares of TA common stock to its fair value.

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

(5) Transaction related costs for the three 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.

(5) Transaction related costs for the three and six months ended June 30, 2023 of $931 and $1,818, respectively, primarily consisted of costs related to hotel rebranding activity, demolition of certain vacant properties, and potential acquisitions.

Transaction related costs for the three months ended June 30, 2022 of $743 primarily consisted of costs related to potential financing transactions and for the three months ended March 31, 2022 of $1,177 primarily consisted of costs related to our hotel rebranding activities.

(6) We recorded a $238 loss on early extinguishment of debt during the three months ended June 30, 2023 related to the write off of unamortized issuance costs relating to our amendment to our revolving credit agreement, a $44 loss on early 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 March 2023 and a $791 loss on early extinguishment of debt during the three and six months ended June 30, 2022 related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our revolving credit facility and the repayment of $500,000 of unsecured senior notes.

(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