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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-28 · 253 added, 348 removed, 357 unchanged (63% of the section changed)

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The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in Part IV, Item 15 of this Annual Report on Form 10-K.

Overview (dollar amounts in thousands, except share amounts and per room hotel data)

Overview (dollars in thousands, except per share amounts and per room hotel data)

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

As of December 31, 2023, we owned 973 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

Business Environment and Outlook.

As a result of the COVID-19 pandemic, and the market practices that arose or increased in response to the pandemic, the impacts they have had on travel and the broader economy throughout the U.S.

since March 2020, our hotels have experienced significant declines in occupancy, which have had a significant negative effect on our operating results and cash flow.

While occupancy has since recovered significantly, there remains uncertainty as to when and if operations at our hotels will return to pre-pandemic levels.

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

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

hospitality industry to be a multi-year process.

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

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

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has signaled that further increases are likely to occur.

These inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S.

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

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

Liquidity and Financing Transactions.

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

In October 2022, we and the lenders further amended our credit agreement and exercised our remaining six month option to extend the maturity date to July 15, 2023.

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

As of February 24, 2023, we have no amounts outstanding under our credit facility and $616,867 of cash or cash equivalents.

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

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

Note Class S&P Rating Amount Coupon Rate Term Maturity

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

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

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

Total / weighted average $ 610,200 5.50%

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

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

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

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

Disposition Activities.

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

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

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

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

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

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

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

In response to significant and prolonged increases in inflation, the U.S.

Federal Reserve raised interest rates multiple times since the beginning of 2022.

Although the U.S.

Federal Reserve has indicated that it may lower rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.

These inflationary pressures in the United States, as well as global geopolitical instability and tensions, have given rise to uncertainty regarding economic downturns or a possible recession and potential disruptions in the financial markets.

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

Increased labor costs and other price inflation, including due to supply chain challenges, may continue to negatively impact our hotel operations and the operations of our tenants.

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

Management Agreements and Leases.

At December 31, 2022, we owned 238 hotels operated under six agreements.

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

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

Hotel Agreements.

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

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

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

We expect this sale to be completed in March 2023.

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

At December 31, 2023, we also owned 752 service-focused retail properties leased to 175 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

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

Hotel Portfolio.

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In 2023, the U.S.

hotel industry generally realized increases in ADR, revenue per available room, or RevPAR, and occupancy compared to the corresponding 2021 periods.

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

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.

Year Ended December 31,

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We present RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods.

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

For the years ended December 31, 2022 and 2021, SVC’s comparable results exclude three hotels that had suspended operations during part of the periods presented.

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

For the years ended December 31, 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.

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RevPAR $ 87.55 $ 83.52 4.8 %

We believe these results are primarily due to the improved lodging fundamentals in the current year periods and disruption and displacement at certain of our hotels as a result of the COVID-19 pandemic and market practices that arose or increased since the beginning of the pandemic that negatively affected results more in 2021.

Net Lease Portfolio .

As of December 31, 2022, we owned 765 service-oriented retail properties with 13,374,325 square feet and annual minimum rent of $372,418, and 180 tenants subject to “triple net” leases, where the tenants are generally responsible for payment of operating expenses and capital expenditures.

Our net lease portfolio was 97.6% occupied as of December 31, 2022 with a weighted (by annual minimum rent) lease term of 9.6 years, operating under 138 brands in 21 distinct industries.

As of December 31, 2023, we owned 752 service-focused retail net lease properties with an aggregate of 13,341,172 square feet leased to 175 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $372,319.

Our net lease properties were 97.1% occupied as of December 31, 2023 with a weighted (by annual minimum rent) average lease term of 8.8 years, operating under 137 brands in 21 distinct industries.

TA is our largest tenant.

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

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

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

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

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

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

As of December 31, 2023, we leased 176 of our travel centers to TA under five master 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.

Additional details of our hotel operating agreements, our net lease agreements and the TA Merger are set forth in Notes 4 and 9 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

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

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

For the Year Ended December 31,

Year Ended December 31,

2023 2022 Increase

(Decrease) % Increase

Hotel operating revenues $ 1,478,034 $ 1,467,344 $ 10,690 0.7 %

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Hotel operating expenses 1,223,906 1,227,357 (3,451) (0.3) %

Other operating expenses 13,176 15,658 (2,482) (15.9) %

Net lease operating expenses

17,663 13,176 4,487 34.1 %

Depreciation and amortization - hotels 216,235 221,416 (5,181) (2.3) %

Depreciation and amortization - net lease portfolio 179,692 219,324 (39,632) (18.1) %

Depreciation and amortization - net lease properties 167,825 179,692 (11,867) (6.6) %

Total depreciation and amortization 384,060 401,108 (17,048) (4.3) %

General and administrative 45,397 44,404 993 2.2 %

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

Transaction related costs (1,623) 1,920 (3,543) (184.5) %

Loss on asset impairment, net 9,544 10,989 (1,445) (13.1) %

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Gain on sale of real estate, net 43,239 47,818 (4,579) (9.6) %

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

Interest income 3,379 664 2,715 408.9 %

Gain (loss) on equity securities, net 48,837 (8,104) 56,941 n/m

Interest income 20,979 3,379 17,600 n/m

Interest expense (336,342) (341,795) 5,453 (1.6) %

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

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

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

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

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

Loss on early extinguishment of debt (1,524) (791) (733) 92.7 %

Loss before income tax benefit and equity in (losses) earnings of an investee

(29,895) (135,436) 105,541 (77.9) %

Income tax benefit

1,498 199 1,299 n/m

Equity in (losses) earnings of an investee (4,382) 2,856 (7,238) n/m

Net loss $ (32,779) $ (132,381) $ 99,602 (75.2) %

Weighted average shares outstanding (basic and diluted) 164,988 164,738 250 0.2 %

Net loss per common share:

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

Net loss per common share (basic and diluted) $ (0.20) $ (0.80) $ 0.60 (75.0) %

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

For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020 please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

For a comparison of consolidated results for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022.

Hotel operating revenues.

The increase in hotel operating revenues is primarily a result of higher occupancies and higher average rates at certain of our hotels in the 2022 period and the greater negative impact the COVID-19 pandemic had on our hotels in the 2021 period ($441,676), partially offset by the sale of certain of our hotels since January 1, 2021 ($79,010).

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 ($123,238), partially offset by the sale of certain of our hotels since January 1, 2022 ($112,548).

Additional operating statistics of our hotels are included in the tables on page 66.

Rental income.

The increase in rental income is primarily the result of increases in rental rates and percentage rent recognized at certain of our properties in the 2022 period as compared to the 2021 period ($5,473), partially offset by the impact of properties sold and vacancies at certain of our properties ($708).

The increase in rental income is primarily the result of the amended TA leases in the 2023 period ($7,170), partially offset by our sale of certain net lease properties ($5,815) and lease expirations at certain net lease properties ($1,193) since January 1, 2022.

Hotel operating expenses.

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

Other operating expenses.

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

The decrease in hotel operating expenses is primarily the result of our sale of certain hotels since January 1, 2022 ($109,031), partially offset by an increase in occupancy at certain managed hotels resulting in increases in wages ($62,969), increases in rooms related expenses ($31,558), and increases in utilities ($3,800) and other operating expenses ($7,253).

Net lease operating expenses.

The increase in net lease operating expenses is the result of higher operating expenses at certain net lease properties primarily as a result of vacancies ($1,490) and increases in other operating expenses ($2,997).

Depreciation and amortization - hotels.

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

Depreciation and amortization - net lease portfolio.

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

The decrease in depreciation and amortization - hotels is primarily the result of certain of our depreciable assets becoming fully depreciated since January 1, 2022 ($8,523) and our sale of certain hotels since January 1, 2022 ($6,342), partially offset by depreciation and amortization related to capital expenditures made since January 1, 2022 ($7,484) and our acquisition of a hotel in the 2023 period ($2,200).

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 becoming fully depreciated since January 1, 2022 and our sale of certain net lease properties since January 1, 2022 ($15,396), partially offset by depreciation and amortization related to capital expenditures since January 1, 2022 ($3,529).

General and administrative.

The decrease in general and administrative costs is primarily due to a decrease in business management fees as a result of a decrease in our market capitalization ($6,642), and lower professional service expenses ($282) in the 2022 period.

The increase in general and administrative costs is primarily due to increases in other professional fees ($2,259), share award expenses ($642) and accounting related fees ($235), partially offset by a decrease in business management fees in the 2023 period ($2,143).

Transaction related costs.

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

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

Transaction related costs for the 2023 period primarily consist of the partial recovery of a working capital reserve related to the IHG portfolio previously deemed uncollectable and expensed during 2021 ($5,797), partially offset by costs related to hotel rebranding activity, demolition of certain vacant properties and potential acquisitions ($4,174).

Transaction related costs for the 2022 period primarily consist of costs related to our exploration of possible financing transactions ($1,920).

Loss on asset impairment, net.

We recorded a $9,544 loss on asset impairment during the 2023 period to reduce the carrying value of one hotel and 16 net lease properties to their estimated fair value less costs to sell.

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

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

Gain on sale of real estate, net.

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

Unrealized (losses) gains on equity securities, net.

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

We recorded a $43,239 net gain on sale of real estate during the 2023 period in connection with the sales of 18 hotels and 13 net lease properties, and a $47,818 net gain on sale of real estate in the 2022 period in connection with the sales of 65 hotels and 21 net lease properties.

Gain (loss) on equity securities, net.

G ain (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 2022 period.

The increase in interest income is primarily due to higher interest rates and higher average cash balances invested during the 2023 period.

Interest expense.

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

The decrease in interest expense is due to lower outstanding debt balances, partially offset by higher weighted average interest rates in the 2023 period.

Loss on early extinguishment of debt .

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

Income tax (expense) benefit.

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

Equity in earnings (losses) of an investee.

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

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

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

We recorded a $1,524 loss on early extinguishment of debt in the 2023 period related to the write-off of deferred financing costs and unamortized discounts in connection with the repayment of certain senior unsecured notes and the write-off of certain deferred financing costs relating to the amendment of our revolving credit facility.

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

Income tax benefit.

The increase in income tax benefit is primarily related to a change in deferred tax liabilities related to our Puerto Rico hotel.

See Note 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for further information.

Equity in (losses) earnings of an investee.

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

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

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

Our Managers and Tenants

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and on our hotel managers’ and tenants’ businesses, and the market practices that arose or increased in response to the pandemic have had adverse impacts on some of those industries and businesses.

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

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

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

Our 765 net lease properties were leased to 180 tenants as of December 31, 2022.

As of December 31, 2023, all 221 of our hotels were managed and operated by four hotel operating companies.

Our 752 service-focused retail net lease properties were leased to 175 tenants as of December 31, 2023.

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

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

As of December 31, 2022, our hotel managers included Sonesta (196 hotels), Hyatt (17 hotels), Radisson (eight hotels), Marriott (16 hotels) and IHG (one hotel).

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 these parties themselves fund our owner’s priority returns and rents, from their separate resources.

As of December 31, 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).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We recorded reserves for uncollectable amounts and reduced rental income by $4,927 and reduced our reserves for uncollectable amounts and increased rental income by $320 for the years ended December 31, 2023 and 2022, respectively, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $3,436 and $7,697 as of December 31, 2023 and 2022, respectively, included in other assets in our consolidated balance sheets.

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

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

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

Tenants 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 our tenants.

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

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

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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):

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Cash and cash equivalents and restricted cash at the end of the period $ 197,830 $ 45,420

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

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

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

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 change from cash flow from investing activities in the 2022 period to cash flow used in investing activities in the 2023 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 2022 period is primarily due to proceeds from our senior secured notes and our net lease mortgage notes issued in the 2023 period, partially offset by 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 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 year ended December 31, 2022, we funded $115,927 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels.

We currently expect to fund $250,000 during 2023 for capital improvements to certain hotels 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 year ended December 31, 2023, we funded $226,590 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $250,000 during 2024 for capital improvements to certain hotels using cash on hand and borrowings under our revolving credit facility.

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

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As of December 31, 2023, there was $8,437 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash.

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

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 year ended December 31, 2022.

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

During the year ended December 31, 2022, we funded $6,230 for capital improvements to our other net lease properties.

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 year ended December 31, 2023, we funded $4,060 for capital improvements to our net lease properties.

As of December 31, 2023, we had $2,546 of unspent leasing-related obligations related to certain net lease tenants.

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

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

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

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

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

During the year ended December 31, 2023, we sold 18 hotels with an aggregate of 2,526 rooms for an aggregate sales price of $157,230, excluding closing costs, and 13 net lease properties with an aggregate of 160,310 square feet for an aggregate sales price of $13,095, excluding closing costs.

From January 1, 2024 through February 22, 2024, we sold one net lease property with 4,100 square feet for a sale price of $257, excluding closing costs.

We have also entered into agreements to sell one hotel with 84 keys for $3,315 and four net lease properties with an aggregate of 55,276 square feet for an aggregate sales price of $3,121.

These pending sales are subject to conditions;

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 believe it is more likely than not that the sales of these properties will be completed by year end 2024.

We continue to market five net lease properties with an aggregate of 98,422 square feet for sale.

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

During the year ended December 31, 2022, we funded $45,470 of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, NY using cash on hand.

BP completed the TA Merger on May 15, 2023.

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

During the year ended December 31, 2023, we purchased one hotel in Miami Beach, Florida with 250 rooms for a sales price of $165,400, excluding closing costs, using cash on hand.

During the year ended December 31, 2023, we funded $5,134 of capital contributions to Sonesta to support their growth initiatives, including their franchising efforts, using cash on hand.

During the year ended December 31, 2023, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

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We paid this amount on February 15, 2024 using cash on hand.

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

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

We are required to pay interest at the rate of LIBOR plus a premium, which was 250 basis points per annum, subject to a LIBOR floor of 0.50% at December 31, 2022, on the amount outstanding under our revolving credit facility.

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 December 31, 2022.

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.

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 that we entered into on June 29, 2023.

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.

Availability of borrowings under our credit agreement is subject to ongoing minimum performance and market values of the collateral properties, satisfying certain financial covenants and other credit facility conditions.

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 the secured overnight financing rate, or 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 December 31, 2023.

As collateral for all loans and other obligations under the new facility, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on 69 properties, including 66 hotels and three net lease properties, with an undepreciated carrying value of $1,594,253 as of December 31, 2023.

In addition, in order to maintain compliance with the minimum collateral property availability covenant as defined in the credit agreement, in February 2024, we added three hotels with an undepreciated carrying value of $114,635 as of December 31, 2023, as collateral under the agreement.

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 December 31, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.88%.

We and our lenders amended our credit agreement in 2020.

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

As a result of the amendment, among other things:

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

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

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

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

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

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

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

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

Pursuant to the amendment:

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

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

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

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

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

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

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

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

Pursuant to the amendment:

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

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

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

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

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

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

Year Maturity

2023 $ 500,000

2024 1,175,000

2025 1,150,000

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

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

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

Note Class S&P Rating Amount Coupon Rate Term Maturity

We had no borrowings outstanding under the facility as of December 31, 2023.

In February 2023, one of our subsidiaries, SVC ABS LLC, or 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 include 308 net lease retail properties with annual minimum rents of $63,283 and a gross book carrying value of $755,116 as of December 31, 2023.

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

We redeemed our 4.50% senior notes due in 2023 at a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest to, but excluding the date of redemption in March 2023, using the proceeds from these net lease mortgage notes.

The net lease mortgage notes are summarized below:

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

Coupon Rate Term Maturity

Class A AAA $ 303,729 5.15% 5 years February 2028

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Total / weighted average $ 608,569 5.60%

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

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

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

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

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

In November 2023, we issued $1,000,000 principal amount of 8.625% senior secured notes due 2031, or the 2031 Notes.

The aggregate net proceeds from this offering were $967,525, after initial purchaser discounts and other offering expenses.

These notes are fully and unconditionally guaranteed on a joint and several basis by (i) newly formed wholly owned subsidiaries, or the TA Landlord Subsidiaries, that are the landlords with respect to 70 properties leased to TA with a gross carrying value of $785,876 as of December 31, 2023 and the immediate parent entity of the TA Landlord Subsidiaries, or the Pledgor, and (ii) all of our subsidiaries that guarantee our existing senior unsecured notes.

The subsidiary guarantee provided by the Pledgor is secured by first-priority liens on the equity interests of the TA Landlord Subsidiaries.

The Pledgor and the TA Landlord Subsidiaries have agreed not to guarantee any of our or our subsidiaries other indebtedness.

We redeemed our 4.65% and 4.35% senior unsecured notes due in 2024 for redemption prices equal to the principal amounts of $350,000 and $825,000, respectively, plus accrued and unpaid interest to, but excluding the date of redemption in December 2023, using the proceeds from the 2031 Notes and cash on hand.

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

Year Maturity

2025 1,151,958

2028 1,000,737

2031 1,000,000

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

Our mortgage notes require monthly principal payments as described in Part II, Item 7A of this Annual Report on Form 10-K.

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.

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

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

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

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

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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 Annual Report on Form 10-K, the duration and severity of the COVID-19 pandemic, and the market practices that arose or increase in response to the pandemic, and its impact on economic conditions, as well as the impacts of the current, and possibly future, inflationary conditions, increasing interest rates and a possible recession are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing.

However, as discussed elsewhere in this Annual Report on Form 10-K, 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 December 31, 2022 consisted of $5,700,000 of publicly issued term debt.

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

Our debt obligations at December 31, 2023 consisted of $5,025,000 aggregate principal amounts of senior notes and $608,569 aggregate principal amounts of mortgage notes.

For further information regarding our indebtedness, see Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our publicly and privately issued senior notes are governed by our indentures and related supplements.

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

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

As of December 31, 2022, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement.

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

Senior Notes Indenture Covenants

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of December 31, 2022:

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

Actual Results Covenant Requirement

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Total unencumbered assets / unsecured debt 183.2% Minimum 150%

As of December 31, 2023, adjusted total assets for covenant purposes as defined in our senior notes indentures were $10,742,687 and assets encumbered under our revolving credit facility, serving as collateral for our net lease mortgage notes or secured senior notes represented $3,367,550 of adjusted total assets, as defined in our senior notes indentures.

Our unencumbered hotels, travel centers, other net lease properties and other corporate assets represent $4,569,637, $1,627,037, $849,414 and $329,049 of adjusted total assets, respectively.

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

Total assets $ 7,356,116

accumulated depreciation 3,181,797

impairment and other adjustments to reflect original cost of real estate assets 408,697

accounts receivable and intangibles (203,923)

Adjusted total assets $ 10,742,687

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

Acceleration and Cross-Default

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).

Our 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, and our indenture entered into in November 2023).

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

Our $800,000 of 7.50% unsecured senior notes due 2025, or the 2025 Notes, and our $450,000 of 5.50% unsecured senior notes due 2027, or the 2027 Notes, are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement.

Our 2025 Notes and our 2027 Notes are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement and our net lease mortgage notes.

The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors’ secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

Our remaining $2,775,000 of senior unsecured notes do not have the benefit of any guarantees.

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

A subsidiary guarantor’s guarantee of the 2025 Notes, 2027 Notes and 2031 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, in the case of the 2031 Notes, both agencies, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.

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

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Real estate properties, net (1)

Intercompany balances (2)

Other assets, net 552,196

Indebtedness, net $ 4,961,344

Intercompany balances (2)

Other liabilities 395,433

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(1) Real estate properties, net as of December 31, 2023 includes $169,158 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.

(2) Intercompany balances represent payables to non-guarantor subsidiaries.

Related Person Transactions

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• income taxes.

We have determined that each of our wholly owned TRSs is a VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or the Codification.

We have determined that each of our wholly owned TRSs is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification™, or the Codification.

We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIE’s performance and we have the obligation to absorb the majority of the potential variability in gains and losses of each VIE, with the primary focus on losses, and are therefore the primary beneficiary of each VIE.

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For acquired real estate, we record building, land, furniture, fixtures and equipment, and, if applicable, the value of acquired in-place leases, the fair market value of above or below market leases and customer relationships at fair value.

For transactions that qualify as business combinations we allocate the excess, if any, of the consideration over the fair value of assets acquired to goodwill.

For transactions that qualify as business combinations we allocate the excess, if any, of the consideration over the fair value of the net assets acquired to goodwill.

We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisers to provide market information and evaluations that are relevant to our purchase price allocations and determinations of useful lives;

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If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.

We test our indefinite lived intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual tests indicate that the asset might be impaired.

The impairment test requires us to determine the estimated fair value of the intangible asset.

An impairment charge is recorded if the fair value is determined to be lower than the carrying value.

We periodically evaluate our equity method investments for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.

We periodically evaluate our equity method investment for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.

These indicators may include the length of time and degree to which the market value of our investment is below our cost basis, the financial condition of the issuer, our intent and ability to be a long term holder of the investment and other considerations.

If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

We determine the fair value for our long lived assets and indefinite lived intangible assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques.

We determine the fair value for our long lived assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques.

These analyses require us to judge whether indicators of impairment exist and to estimate likely future cash flows.

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Incorrect assumptions or estimates may result in misclassification of our leases.

See Note 2 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion on the impact to our accounting for leases due to recent accounting pronouncements.

We account for income taxes in accordance with the Income Taxes Topic of the Codification.

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In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.

Property and Operating Statistics (dollar amounts in thousands)

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

As of December 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 146 distinct brands across 22 industries.

Hotel Portfolio

The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenants by hotel brand for the periods indicated.

All operating data presented are based upon the operating results provided by our hotel managers and tenants for the indicated periods.

We have not independently verified our managers’ or tenants’ operating data.

The following tables summarize the operating statistics, including ADR, RevPAR and occupancy reported to us by our hotel managers by hotel brand for the periods indicated.

All operating data presented are based upon the operating results provided by our hotel managers for the indicated periods.

We have not independently verified our managers’ operating data.

Comparable Hotels* No.

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of Rooms or Suites Occupancy ADR RevPAR

Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

Full Service 22 7,149 60.4 % 47.4 % 13.0 pts $ 150.40 $ 132.07 13.9 % $ 90.84 $ 62.60 45.1 %

Royal Sonesta (1)

Full Service 16 5,291 52.2 % 36.3 % 15.9 pts 236.67 190.05 24.5 % 123.54 68.99 79.1 %

Radisson Hotel Full Service 5 1,149 64.1 % 50.4 % 13.7 pts 133.59 105.23 27.0 % 85.63 53.04 61.4 %

Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand Service Level 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Hotels & Resorts® Full Service 22 7,149 62.4 % 60.4 % 2.0 pts $ 152.48 $ 150.40 1.4 % $ 95.15 $ 90.84 4.7 %

Royal Sonesta Hotels® Full Service 17 5,663 56.5 % 52.2 % 4.3 pts 237.63 236.07 0.7 % 134.26 123.23 9.0 %

Radisson® Hotels & Resorts Full Service 5 1,149 62.5 % 64.1 % (1.6) pts 146.45 133.59 9.6 % 91.53 85.63 6.9 %

Crowne Plaza® Full Service 1 495 60.6 % 54.4 % 6.2 pts 141.30 132.27 6.8 % 85.63 71.95 19.0 %

Country Inn and Suites Full Service 3 430 62.8 % 50.0 % 12.8 pts 136.92 109.10 25.5 % 85.99 54.55 57.6 %

Country Inn & Suites® by Radisson Full Service 3 430 65.9 % 62.8 % 3.1 pts 137.17 136.92 0.2 % 90.40 85.99 5.1 %

Full Service Total/Average 48 14,886 60.2 % 57.4 % 2.8 pts 181.71 177.85 2.2 % 109.39 102.09 7.2 %

Sonesta Select (1)

Select Service 45 6,579 51.1 % 37.0 % 14.1 pts 117.49 105.56 11.3 % 60.04 39.06 53.7 %

Sonesta Select® Select Service 44 6,427 54.9 % 51.6 % 3.3 pts 118.45 117.76 0.6 % 65.03 60.76 7.0 %

Hyatt Place® Select Service 17 2,107 65.3 % 67.4 % (2.1) pts 122.23 119.00 2.7 % 79.82 80.21 (0.5) %

Courtyard Select Service 13 1,813 55.5 % 50.7 % 4.8 pts 119.01 103.14 15.4 % 66.05 52.29 26.3 %

Select Service Total/Average 61 8,534 57.5 % 55.5 % 2.0 pts 119.51 118.13 1.2 % 68.72 65.56 4.8 %

Sonesta ES Suites (1)

Extended Stay 60 7,643 69.3 % 66.7 % 2.6 pts 124.90 105.72 18.1 % 86.56 70.52 22.7 %

Sonesta Simply Suites (1)

Extended Stay 50 6,366 71.2 % 68.8 % 2.4 pts 86.18 72.37 19.1 % 61.36 49.79 23.2 %

Residence Inn Extended Stay 3 342 64.0 % 57.2 % 6.8 pts 120.25 110.01 9.3 % 76.96 62.93 22.3 %

Sonesta ES Suites® Extended Stay 60 7,643 67.8 % 69.3 % (1.5) pts 128.33 124.90 2.7 % 87.01 86.56 0.5 %

Sonesta Simply Suites® Extended Stay 50 6,366 68.5 % 71.2 % (2.7) pts 90.63 86.18 5.2 % 62.08 61.36 1.2 %

Extended Stay Total/Average 110 14,009 68.1 % 70.2 % (2.1) pts 111.17 107.21 3.7 % 75.71 75.26 0.6 %

Comparable Hotels Total/Average 219 37,429 62.6 % 61.7 % 0.9 pts $ 139.86 $ 135.36 3.3 % $ 87.55 $ 83.52 4.8 %

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

For the years ended December 31, 2022 and 2021, our comparable results excluded three hotels that had suspended operations during part of the periods presented.

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

For the years ended December 31, 2023 and 2022, our comparable results exclude two hotels;

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

All Hotels* No.

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of Rooms or Suites Occupancy ADR RevPAR

Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change

Full Service 23 7,368 60.4 % 47.4 % 13.0 pts $ 150.40 $ 132.07 13.9 % $ 90.84 $ 62.60 45.1 %

Royal Sonesta (1)

Full Service 17 5,663 52.2 % 35.7 % 16.5 pts 236.07 190.02 24.2 % 123.23 67.84 81.6 %

Radisson Hotel Full Service 5 1,149 64.1 % 50.4 % 13.7 pts 133.59 105.23 27.0 % 85.63 53.04 61.4 %

Year Ended December 31, Year Ended December 31, Year Ended December 31,

Brand Service Level 2023 2022 Change 2023 2022 Change 2023 2022 Change

Sonesta Hotels & Resorts® Full Service 23 7,399 62.5 % 60.4 % 2.1 pts $ 157.60 $ 158.00 (0.3) % $ 98.50 $ 95.43 3.2 %

Royal Sonesta Hotels® Full Service 17 5,663 56.5 % 52.2 % 4.3 pts 237.63 236.07 0.7 % 134.26 123.23 9.0 %

Radisson® Hotels & Resorts Full Service 5 1,149 62.5 % 64.1 % (1.6) pts 146.45 133.59 9.6 % 91.53 85.63 6.9 %

Crowne Plaza® Full Service 1 495 60.6 % 54.4 % 6.2 pts 141.30 132.27 6.8 % 85.63 71.95 19.0 %

Country Inn and Suites Full Service 3 430 62.8 % 50.0 % 12.8 pts 136.92 109.10 25.5 % $ 85.99 $ 54.55 57.6 %

Country Inn & Suites® by Radisson Full Service 3 430 65.9 % 62.8 % 3.1 pts 137.17 136.92 0.2 % 90.40 85.99 5.1 %

Full Service Total/Average 49 15,136 60.3 % 57.4 % 2.9 pts 183.77 181.21 1.4 % 110.81 104.01 6.5 %

Sonesta Select (1)

Select Service 45 6,579 51.1 % 37.0 % 14.1 pts 117.49 105.56 11.3 % 60.04 39.06 53.7 %

Sonesta Select® Select Service 44 6,427 54.9 % 51.6 % 3.3 pts 118.45 117.76 0.6 % 65.03 60.76 7.0 %

Hyatt Place® Select Service 17 2,107 65.3 % 67.4 % (2.1) pts 122.23 119.00 2.7 % 79.82 80.21 (0.5) %

Courtyard Select Service 13 1,813 55.5 % 50.7 % 4.8 pts 119.01 103.14 15.4 % 66.05 52.29 26.3 %

Select Service Total/Average 61 8,534 57.5 % 55.5 % 2.0 pts 119.51 118.13 1.2 % 68.72 65.56 4.8 %

Sonesta ES Suites (1)

Extended Stay 60 7,643 69.3 % 66.7 % 2.6 pts 124.90 105.72 18.1 % 86.56 70.52 22.7 %

Sonesta Simply Suites (1)

Extended Stay 51 6,464 70.4 % 68.6 % 1.8 pts 86.18 72.25 19.3 % 60.67 49.56 22.4 %

Residence Inn Extended Stay 3 342 64.0 % 57.2 % 6.8 pts 120.25 110.01 9.3 % 76.96 62.93 22.3 %

Sonesta ES Suites® Extended Stay 60 7,643 67.8 % 69.3 % (1.5) pts 128.33 124.90 2.7 % 87.01 86.56 0.5 %

Sonesta Simply Suites® Extended Stay 51 6,464 67.8 % 70.4 % (2.6) pts 90.63 86.18 5.2 % 61.45 60.67 1.3 %

Extended Stay Total/Average 111 14,107 67.8 % 69.8 % (2.0) pts 111.17 107.21 3.7 % 75.37 74.83 0.7 %

All Hotels Total/Average 221 37,777 62.5 % 61.6 % 0.9 pts $ 140.94 $ 136.89 3.0 % $ 88.09 $ 84.32 4.5 %

* Results of all hotels owned as of December 31, 2022.

Excludes the results of hotels sold during the periods presented.

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

* Includes results of all hotels owned as of December 31, 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 December 31, 2023, our net lease properties were 97.1% occupied and we had 22 properties available for lease.

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

During the year ended December 31, 2023, we entered into lease renewals for 5,774,455 rentable square feet (214 properties) at weighted (by rentable square feet) average rents that were 9.4% above the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 10.0 years.

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

We also entered into new leases for 161,875 rentable square feet (seven properties) at weighted (by rentable square feet) average rents that were 21.9% above the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.0 years.

As of December 31, 2022, our net lease tenants operated across more than 138 brands.

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 December 31, 2023, our net lease tenants operated across 137 brands.

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

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Percent of Total Annualized

Minimum Rent (2)

TravelCenters of America 133 $ 2,289,189 44.8 % $ 168,012 45.1 % 2.86x

Minimum Rent Rent Coverage (3)

TravelCenters of America Inc.

132 $ 2,258,977 44.6 % $ 173,402 46.6 % 1.91x (5)

Petro Stopping Centers 44 1,015,156 20.1 % 80,598 21.6 % 1.91x (5)

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Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 2.35x

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

Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 3.08x

Heartland Dental 59 61,120 1.2 % 4,699 1.3 % 4.41x

Norms 10 53,673 1.1 % 3,628 1.0 % 2.11x

AMC Theatres 6 67,023 1.3 % 4,438 1.2 % 1.61x

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

Norms 10 53,673 1.1 % 3,693 1.0 % 3.35x

Pizza Hut 40 45,285 0.9 % 3,422 0.9 % 2.25x

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Total 752 $ 5,062,695 100.0 % $ 372,319 100.0 % 2.46x

(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.

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

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

(3) See page 58 for our definition of coverage.

(4) Consists of 128 distinct brands with an average investment of $9,670 and average annual minimum rent of $665.

As of December 31, 2022, our top ten net lease tenants based on our investments are listed below.

(4) Consists of 127 distinct brands with an average investment of $2,991 and average annual minimum rent of $190 per property.

(5) Rent coverage information provided by tenant is for all 176 sites on a consolidated basis and is as of December 31, 2023.

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

Tenant Brand Affiliation No.

4 unchanged sentences

Minimum Rent (2)

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

TravelCenters of America Inc.

TravelCenters of America / Petro Stopping Centers 176 $ 3,274,133 64.7 % $ 254,000 68.2 % 1.91 x (4)

Universal Pool Co., Inc.

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Healthy Way of Life II, LLC Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 2.35 x

American Multi-Cinema, Inc.

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

Styx Acquisition, LLC Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 3.08 x

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Heartland Dental 59 61,120 1.2 % 4,699 1.3 % 4.41 x

Norms Restaurants, LLC Norms 10 53,673 1.1 % 3,628 1.0 % 2.11 x

American Multi-Cinema, Inc.

AMC Theatres 6 67,023 1.3 % 4,438 1.2 % 1.61 x

Express Oil Change, L.L.C.

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

Norms Restaurants, LLC Norms 10 53,673 1.1 % 3,693 1.0 % 3.35 x

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,247 0.9 % 5.02 x

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America's Auto Auction 6 38,314 0.8 % 3,216 0.9 % 7.09 x

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

Subtotal, Top 10

305 3,852,996 76.1 % 296,148 79.6 % 2.23 x

Various 447 1,209,699 23.9 % 76,171 20.4 % 3.38 x

Total 752 $ 5,062,695 100.0 % $ 372,319 100.0 % 2.46 x

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

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

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

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

(2) See page 67 for our definition of annualized minimum rent.

(3) See page 58 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 master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.

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

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

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

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

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

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

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 under each lease.

BP Corporation North America Inc.

guarantees payments under each of the five master leases.

The aggregate guaranty as of December 31, 2023 was approximately $3,037,475.

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

Rent coverage was 1.83x, 1.92x, 1.97x, 2.07x and 1.79x, for our TA leases no.

5, respectively.

Rent coverage is as of December 31, 2023.

(5) Consists of 165 tenants with an average investment of $2,706 and an average annual minimum rent of $170 per property.

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

of Properties

6 unchanged sentences

Restaurants - Casual Dining 52 186,184 3.7 % 11,624 3.0 % 2.85x

Home Goods and Leisure 20 121,128 2.4 % 10,465 2.7 % 4.97x

Health and Fitness 13 186,365 3.7 % 9,501 2.6 % 1.97x

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

Grocery Stores 19 129,152 2.6 % 9,223 2.5 % 3.66x

Home Goods and Leisure 20 120,702 2.4 % 9,674 2.6 % 0.06x

Movie Theaters 16 149,345 2.9 % 8,666 2.3 % 1.88x

Medical, Dental Office 70 104,042 2.1 % 8,053 2.2 % 3.52x

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

Automotive Equipment and Services 64 107,054 2.1 % 7,651 2.1 % 4.44x

Automotive Dealers 8 62,656 1.2 % 4,964 1.3 % 6.24x

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

Educational Services 8 54,759 1.1 % 4,356 1.2 % 1.51x

Entertainment 4 61,436 1.2 % 4,329 1.2 % 3.17x

General Merchandise Stores 4 55,457 1.1 % 3,929 1.1 % 2.85x

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Drug Stores and Pharmacies 6 17,111 0.3 % 1,122 0.3 % 1.23x

Sporting Goods 3 17,742 0.3 % 1,090 0.3 % 4.99x

Legal Services 5 11,362 0.2 % 1,075 0.3 % 5.49x

Sporting Goods 3 17,742 0.4 % 718 0.2 % 3.69x

Dollar Stores 3 2,971 0.1 % 189 0.1 % 2.46x

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

5 27,244 0.5 % 3,208 0.9 % 5.60x

Vacant 22 78,558 1.6 % — — % —x

Total 752 $ 5,062,695 100.0 % $ 372,319 100.0 % 2.46x

(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.

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

(2) See page 67 for our definition of annualized minimum rent.

(3) See page 58 for our definition of coverage.

(4) Rent coverage for TA is as of December 31, 2023.

(5) Consists of miscellaneous businesses with an average investment of $5,449 per property.

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

Percent of Total Cumulative % of

Square Annualized Minimum Annualized Minimum Total Minimum

Feet Rent Expiring Rent Expiring Rent Expiring

2023 271,062 $ 2,207 0.6% 0.6%

Number of Properties

Square Feet Annualized Minimum Rent Expiring (2)

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

2024 37 586,223 $ 7,966 2.1% 2.1%

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

(2) See page 67 for our definition of annualized minimum rent.

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

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

Percent of Total

Square Annualized Minimum Annualized Minimum

State Feet Rent Rent

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

State Number of Properties

Square Feet Annualized Minimum Rent (1)

Percent of Total Annualized Minimum Rent

Texas 55 1,168,354 $ 33,419 9.0%

Illinois 1,010,047 26,581 7.1%

Ohio 39 1,368,924 27,031 7.3%

Illinois 56 1,010,047 26,995 7.3%

California 22 399,045 25,283 6.8%

Georgia 73 590,245 20,451 5.5%

Arizona 476,651 17,552 4.7%

Indiana 637,239 16,421 4.4%

Florida 46 529,040 16,600 4.5%

Arizona 25 476,651 16,413 4.4%

Pennsylvania 28 544,003 15,437 4.1%

Indiana 40 620,950 15,331 4.1%

New Mexico 16 246,478 11,602 3.1%

1 unchanged sentence

Total 752 13,341,172 $ 372,319 100.0%

(1) See page 67 for our definition of annualized minimum rent.

Our hotels and travel centers have historically experienced seasonal differences typical of their industries with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters.

5 unchanged sentences

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

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

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

We are environmentally conscious and aware of the impact our properties have on the environment.

2 unchanged sentences

When we renovate our hotels we generally use energy efficient products including but not limited to lighting, windows and HVAC equipment and many of the appliances in our extended stay hotels are Energy Star rated.

We or our tenants or managers have also installed car battery charging stations at some of the properties in our portfolio to accommodate environmentally aware customers.

We or our tenants or managers have also installed car battery charging stations at some of the properties to accommodate environmentally aware customers.

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

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Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its Leadership in Energy and Environmental Design, or LEED ® , green building program.

In addition, Sonesta supports the American Hotel & Lodging Association’s Responsible Stay initiative focused on energy efficiency, waste reduction, water conservation and responsible sourcing practices.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change.

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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 income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of real estate 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.

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

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

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

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

Our calculations of FFO and Normalized FFO for the years ended December 31, 2022, 2021 and 2020 and reconciliations of net income (loss) available for common shareholders, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Year Ended December 31,

2022 2021 2020

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

Year Ended December 31,

Net loss $ (32,779) $ (132,381)

1 unchanged sentence

Gain on sale of real estate, net (43,239) (47,818)

(47,818) (11,522) (2,261)

Loss on asset impairment (2)

10,989 78,620 55,756

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

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

Loss on asset impairment, net 9,544 10,989

(Gain) loss on equity securities, net (48,837) 8,104

Adjustments to reflect our share of FFO attributable to an investee

3,723 2,605 (61)

FFO 272,692 243,725

Transaction related costs (1,623) 1,920

1,920 64,764 15,100

Loss on early extinguishment of debt 1,524 791

Loss contingency (7)

Gain on insurance settlement, net of tax (8)

Adjustments to reflect our share of Normalized FFO attributable to an investee

1,037 2,270 964

Normalized FFO $ 274,418 $ 247,473

Weighted average shares outstanding (basic) 164,738 164,566 $ 164,422

Weighted average shares outstanding (diluted) (9)

164,738 164,566 $ 164,422

Weighted average shares outstanding (basic and diluted) 164,988 164,738

Basic and diluted per common share amounts:

3 unchanged sentences

Distributions declared per share $ 0.80 $ 0.23

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

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

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

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

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

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

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

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

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

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

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

(6) We recorded a $791 loss on early extinguishment of debt in the 2022 period related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our credit agreement and the repayment of

$500,000 of unsecured notes.

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

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

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

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

We also recorded a $13,850 deferred tax liability as a result of the book value to tax basis difference related to this accounting during the year ended December 31, 2020.

(9) Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis