What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 161 added, 148 removed, 499 unchanged (38% of the section changed)

3 unchanged sentences

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

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

As of September 30, 2023, we owned 982 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 may occur.

Federal Reserve has increased the federal funds rate multiple times since the beginning of 2022 and 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.

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Management Agreements and Leases .

At June 30, 2023, we owned 221 hotels operated under four agreements.

At September 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 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.

At September 30, 2023, we owned 761 service oriented properties leased to 174 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 June 30, 2023, we owned 221 hotels.

In the three and six months ended June 30, 2023, the U.S.

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

In the three and nine months ended September 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 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,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change

7 unchanged sentences

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

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

For the three and nine months ended September 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 June 30, Six Months Ended June 30,

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

2023 2022 Change 2023 2022 Change

6 unchanged sentences

Net Lease Portfolio .

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.

As of September 30, 2023, we owned 761 service oriented retail properties with 13,430,345 square feet leased to 174 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $374,445.

Our net lease properties were 95.8% occupied as of September 30, 2023 with a weighted (by annual minimum rent) lease term of 9.1 years, operating under 135 brands in 21 distinct industries.

TA is our largest tenant.

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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.

As of September 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 Corporation North America Inc.

guarantees payment under these leases, subject to a cap.

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

1 unchanged sentence

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

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

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

Increase % Increase

9 unchanged sentences

General and administrative 10,849 11,293 (444) (3.9) %

Transaction related costs 931 743 188 25.3 %

Transaction related costs 115 — 115 n/m

Loss on asset impairment, net 512 1,172 (660) (56.3) %

1 unchanged sentence

Other operating income:

(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) %

Gain (loss) on sale of real estate 123 (164) 287 n/m

Gain on equity securities, net — 23,056 23,056 (100.0) %

Interest income 5,626 1,442 4,184 n/m

Interest expense (82,280) (81,740) 540 0.7 %

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

Income before income taxes and equity in losses of an investee (8,234) 5,089 (13,323) n/m

Income tax benefit (expense) 2,242 (390) 2,632 n/m

Equity in earnings of an investee 1,864 2,801 (937) (33.5) %

2 unchanged sentences

Net (loss) income per common share (basic and diluted) $ (0.03) $ 0.05 $ (0.08) 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.

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

The decrease in hotel operating revenues is primarily a result of our sale of certain hotels since July 1, 2022 ($21,734), partially offset by higher ADR and RevPAR at certain of our hotels ($16,807).

Additional operating statistics of our hotels are included in the table on page 33.

Rental income.

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

The increase in rental income is primarily a result of the amended 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).

The decrease in hotel operating expenses is primarily a result of our sale of certain hotels since July 1, 2022 ($19,473), partially offset by an increase in occupancy at certain managed hotels resulting in an increase in wages and benefits ($9,718), and an increase in rooms, food and beverage, marketing and sales expenses, management fees and other operating expenses ($9,241).

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).

The increase in other operating expenses is primarily the result of higher operating expenses at certain net lease properties ($1,300), partially offset by our sale of certain net lease properties since July 1, 2022 ($9).

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).

The decrease in depreciation and amortization - hotels is primarily a result of certain of our depreciable assets becoming fully depreciated ($1,975) and our sale of certain hotels since July 1, 2022 ($2,116), partially offset by depreciation and amortization related to capital expenditures made since July 1, 2022 ($1,771) and our acquisition of a hotel in the 2023 period ($942).

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).

The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets being fully depreciated ($4,257), our sale of certain net lease properties since July 1, 2022 ($187), and depreciation and amortization related to other capital expenditures ($1,194).

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).

The decrease in general and administrative costs is primarily due to a decrease in franchise and other taxes ($415).

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.

Transaction related costs for the three months ended September 30, 2023 primarily consisted of costs related to hotel rebranding activity.

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.

We recorded a $512 loss on asset impairment, net during the three months ended September 30, 2023 to reduce the carrying value of three net lease properties to their estimated fair value less costs to sell.

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

Gain (loss) on sale of real estate.

We recorded a $123 net gain on sale of real estate during the three months ended September 30, 2023 in connection with the sale of two net lease properties.

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.

Gain on equity securities, net.

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.

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.

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.

The increase in interest expense is primarily due to amounts incurred in relation to the net lease mortgage notes issued in the 2023 period.

Income tax benefit (expense).

The change in income tax benefit (expense) is primarily a result of recording state and foreign tax benefits during the 2023 period compared to income tax expense in the 2022 period.

Equity in earnings of an investee.

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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,

Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022

For the Nine Months Ended September 30,

Increase % Increase

13 unchanged sentences

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

Gain on sale of real estate 41,959 44,235 (2,276) (5.1) %

Gain on equity securities, net 48,837 2,737 46,100 n/m

Interest income 11,880 2,735 9,145 n/m

2 unchanged sentences

Income (loss) before income taxes and equity in losses of an investee 11,609 (103,691) 115,300 (111.2) %

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

Income tax benefit (expense) 775 (1,558) 2,333 149.7 %

Equity in (losses) earnings of an investee (1,840) 4,277 (6,117) n/m

2 unchanged sentences

Net income (loss) per common share (basic and diluted) $ 0.06 $ (0.61) $ 0.67 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.

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

Hotel operating revenues.

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

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 ($115,084), partially offset by our sale of certain hotels since January 1, 2022 ($97,278).

Additional operating statistics of our hotels are included in the table on page 33.

Rental income.

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).

The increase in rental income is primarily a result of the amended TA leases in the 2023 period ($6,930), partially offset by our sale of certain net lease properties since January 1, 2022 ($3,919).

Hotel operating expenses.

3 unchanged sentences

Depreciation and amortization - hotels.

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).

The decrease in depreciation and amortization - hotels is primarily a result of certain of our depreciable assets becoming fully depreciated since January 1, 2022 ($6,618) and our sale of certain hotels

($6,344), partially offset by depreciation and amortization related to capital expenditures made since January 1, 2022 ($5,121) and our acquisition of a hotel in the 2023 period ($1,256).

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 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).

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 ($12,184), partially offset by depreciation and amortization related to other capital expenditures ($1,730).

General and administrative.

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).

The decrease in general and administrative costs is primarily due to a decrease in business management fees ($2,495), partially offset by increases in share award expenses ($664) and other professional fees ($268).

Transaction related cos ts.

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.

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

Transaction related costs for the nine months ended September 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 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 $41,836 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 $9,517 loss on asset impairment, net during the nine months ended September 30, 2023 to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.

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

Gain on sale of real estate.

We recorded a $41,959 net gain on sale of real estate in the 2023 period in connection with the sale of 18 hotels and four net lease properties.

We recorded a $44,235 net gain on sale of real estate in the 2022 period in connection with the sales of 61 hotels and 19 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.

Gain on equity securities, net.

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.

Interest income.

5 unchanged sentences

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.

Income tax benefit (expense).

The change in income tax benefit (expense) is primarily a result of recording a state income tax benefit in the 2023 period compared to income tax expense in the 2022 period.

Equity in (losses) earnings of an investee.

4 unchanged sentences

Our Managers and Tenants

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.

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

Our 761 net lease properties were leased to 174 tenants as of September 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 June 30, 2023, our hotel managers included Sonesta (195 hotels), Hyatt (17 hotels), Radisson (eight hotels), and IHG (one hotel).

As of September 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 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 reduced reserves for uncollectable amounts and increased rental income by $1,041 for the three months ended September 30, 2023 and increased reserves and reduced rental income by $4,312 for the nine months ended September 30, 2023, based on our assessment of the collectability of rents.

We increased our reserves for uncollectable amounts and reduced rental income by $352 for the three months ended September 30, 2022 and reduced our reserves and increased rental income by $315 for the nine months ended September 30, 2022, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $2,825 and $7,697 as of September 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.

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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 2.94x and 2.80x as of June 30, 2023 and 2022, respectively.

Our net lease properties generated coverage of 2.72x and 2.88x as of September 30, 2023 and 2022, respectively.

Our Operating Liquidity and Capital Resources

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

5 unchanged sentences

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.

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, our hotel acquisition and increased real estate improvements 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, partially offset by proceeds from our net lease mortgage notes issuance and increased distributions during 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 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.

During the nine months ended September 30, 2023, we funded $122,667 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $75,000 for capital improvements to certain hotels during the last three 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 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.

During the nine months ended September 30, 2023, certain of our hotel managers deposited $5,487 to these accounts and spent $3,941 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of September 30, 2023, there was $8,534 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.

During the nine months ended September 30, 2023, we funded $3,323 for capital improvements to our net lease properties.

As of September 30, 2023, we had $2,692 of unspent leasing-related obligations related to certain net lease tenants.

During the nine months ended September 30, 2023, we sold 18 hotels with 2,526 rooms for an aggregate sales price of $157,230, excluding closing costs and four net lease properties with 41,517 square feet for an aggregate sales price of $4,345, excluding closing costs.

From October 1, 2023 through November 3, 2023, we sold two net lease properties with an aggregate 9,537 square feet and carrying value of $1,594 for an aggregate sales price of $1,190.

As of November 3, 2023, we have entered into agreements to sell six net lease properties with an aggregate 82,159 square feet for an aggregate sales price of $6,093.

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.

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

We continue to market 11 net lease properties with an aggregate 162,676 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.

1 unchanged sentence

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:

During the nine months ended September 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 nine months ended September 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

1 unchanged sentence

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

July 13, 2023 July 24, 2023 August 17, 2023 0.20 33,096

$ 0.60 $ 99,275

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.

On October 12, 2023, we declared a regular quarterly distribution to common shareholders of record as of October 23, 2023 of $0.20 per share, or approximately $33,096.

We expect to pay this amount on or about November 16, 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.

This new facility replaced 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.

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 $1,544,227 as of September 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:

As of September 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.93%.

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

The weighted average annual interest rate for borrowings under the prior facility was 4.37% and 3.36%, respectively, for the three and nine months ended September 30, 2022.

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

Type Year Maturity

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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 $65,490 and a gross book carrying value of $754,916 as of June 30, 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 $65,137 and a gross book carrying value of $754,966 as of September 30, 2023.

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

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The net lease mortgage notes are summarized as follows:

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

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

Coupon Rate Term Maturity

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Total / weighted average $ 609,058 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.

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 the incurrence of debt 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.

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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.

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

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

We have no control over market conditions.

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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 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.

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 economic recession are uncertain and may have various negative consequences on us and our operations, including a decline in financing availability and increased costs for financing.

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

Debt Covenants

Our debt obligations at June 30, 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.

Our debt obligations at September 30, 2023 consisted of $5,200,000 of publicly issued term debt and $609,058 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.

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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 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.

As of September 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 June 30, 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 September 30, 2023:

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 163.2% Minimum 150%

As of September 30, 2023, adjusted total assets for covenant purposes as defined in our unsecured senior notes indentures were $10,923,462 and assets encumbered under our revolving credit facility or serving as collateral for our net lease mortgage notes represented $2,438,949 of adjusted total assets, as defined in our unsecured senior notes indentures.

Our unencumbered hotels, travel centers, other net lease properties and other corporate assets represent $4,528,912, $2,484,633, $924,907 and $546,061 of adjusted total assets, respectively.

The following table presents the calculation of adjusted total assets to total assets in accordance with GAAP:

accumulated depreciation

impairment and other adjustments to reflect original cost of real estate assets

accounts receivable and intangibles

Adjusted total assets

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

Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration, which could be triggered by a change in our debt ratings.

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

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

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

Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or more.

Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration which could be triggered by a change in our debt ratings.

Supplemental Guarantor Information

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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 June 30, 2023 As of December 31, 2022

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

Real estate properties, net (1)

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Other liabilities 535,402 366,936

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.

Nine Months Ended

September 30, 2023

(1) Real estate properties, net as of September 30, 2023 includes $684,728 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 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.

As of September 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 144 distinct brands across 22 industries.

Hotel Portfolio

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of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

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Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

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

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

For the three and nine months ended September 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.

of Rooms or Suites Occupancy ADR RevPAR

1 unchanged sentence

of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

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Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2023 2022 Change 2023 2022 Change 2023 2022 Change

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All Hotels Total/Average 221 37,777 64.2 % 62.5 % 1.7 pts $142.05 $136.91 3.8 % $ 91.20 $ 85.57 6.6 %

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

* Results of all hotels owned as of September 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 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.

As of September 30, 2023, our net lease properties were 95.8% occupied and we had 32 properties available for lease.

During the nine months ended September 30, 2023, we entered into lease renewals for 5,592,790 rentable square feet (206 properties) at weighted (by rentable square feet) average rents that were 9.5% 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 new leases for 5,911 rentable square feet (two properties) for rent that was 116.3% above the prior rent for the same space.

We also entered into new leases for 111,109 rentable square feet (three properties) for rent that was 32.1% above the prior rent for the same space.

The weighted (by rentable square feet) average lease term for these leases was 10.3 years.

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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.

As of September 30, 2023, our net lease tenants operated across 135 brands.

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

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(4) Consists of 125 distinct brands with an average investment of $2,948 and average annual minimum rent of $192 per property.

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

(5) Rent coverage information provided by tenant is for all 176 sites on a consolidated basis and is as of September 30, 2023.

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

Tenant Brand Affiliation No.

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

Rent coverage was 2.17x, 2.31x, 2.32x, 2.42x and 2.15x, for our TA leases no.

5, respectively.

Rent coverage is as of September 30, 2023.

(5) Consists of 164 tenants with an average investment of $2,656 and an average annual minimum rent of $174 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.

As of September 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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(3) See page 27 for our definition of coverage.

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

(4) Rent coverage for TA is as of September 30, 2023.

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

Square Feet Annualized Minimum Rent Expiring (2)

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2044 83,635 125 —% 99.0%

2045 63,490 3,693 1.0% 100.0%

Total 12,913,390 $ 374,445 100%

1 unchanged sentence

(2) See page 34 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.

As of September 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.

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

For further information about these and other such relationships and related person transactions, see Notes 5, 6, 9 and 10 to our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2022 Annual Report, our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC.

For further information about these and other such relationships and related person transactions, see Notes 5, 6, 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2022 Annual Report, our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC.

In addition, see the section captioned “Risk Factors” in our 2022 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

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

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 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,

Our calculations of FFO and Normalized FFO for the three and nine months ended September 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 September 30, For the Nine Months Ended September 30,

2023 2022 2023 2022

Net (loss) income $ (4,128) $ 7,500 $ 10,544 $ (100,972)

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

Depreciation and amortization

94,498 101,514 289,108 306,147

Loss on asset impairment, net (1)

512 1,172 9,517 9,720

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

(Gain) loss on sale of real estate, net (2)

(123) 164 (41,959) (44,235)

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

Gain on equity securities, net (3)

— (23,056) (48,837) (2,737)

5 unchanged sentences

Loss on early extinguishment of debt (6)

238 791 282 791

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

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Distributions declared per share $ 0.20 $ 0.01 $ 0.60 $ 0.03

(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.

(1) We recorded a net loss on asset impairment of $512 to reduce the carrying value of three net lease properties to their estimated fair value less costs to sell during the three months ended September 30, 2023, a net loss on impairment of $9,517 to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell during the nine months ended September 30, 2023, a net loss on 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, and a net loss on 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.

(2) We recorded a $123 net gain on sale of real estate during the three months ended September 30, 2023 in connection with the sale of two net lease properties, 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, a $41,959 net gain on sale of real estate during the nine months ended September 30, 2023 in connection with the sale of 18 hotels and four net lease properties and 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.

(3) Gain on equity securities, net represents the adjustment required to adjust 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 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.

(5) Transaction related costs for the three and nine months ended September 30, 2023 of $115 and $1,933, respectively, primarily consisted of costs related to hotel rebranding activity, demolition of certain vacant properties, and potential acquisitions.

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.

(6) We recorded a $282 loss on early extinguishment of debt during the nine months ended September 30, 2023 related to the write off of unamortized issuance costs relating to our amendment to our revolving credit agreement and the write off of deferred financing costs relating to our repayment of $500,000 of unsecured senior notes due in March 2023.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis