What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-06 · 158 added, 141 removed, 475 unchanged (39% of the section changed)

3 unchanged sentences

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

As of June 30, 2024, we owned 969 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

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 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.

As of September 30, 2024, we owned 959 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

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

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

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

We have also been implementing a significant renovation plan that has caused disruption at certain of our hotels.

On October 16, 2024, we announced our plan to sell 114 focused service hotels managed by Sonesta with an aggregate of 14,925 keys and a net carrying value of $850,000.

We expect to sell these hotels in 2025 and use the net sales proceeds from these sales to repay debt.

We expect that the sales of these hotels will result in savings of approximately $725,000 in capital expenditures, which was projected to be spent over a six year period.

To further improve our liquidity beginning with the fourth quarter of 2024, we reduced our regular quarterly cash distribution on our common shares from $0.20 per common share to $0.01 per common share, which we expect to result in $127,000 of annual savings.

Management Agreements and Leases .

At June 30, 2024, we owned 220 hotels operated under four agreements.

At September 30, 2024, we owned 214 hotels operated under four agreements.

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

At June 30, 2024, we also owned 749 service-focused retail properties leased to 178 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

At September 30, 2024, we also owned 745 service-focused retail properties leased to 176 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures.

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

Hotel Portfolio.

As of June 30, 2024, we owned 220 hotels.

During the three and six months ended June 30, 2024, the U.S.

hotel industry generally realized increases in revenue per available room, or RevPAR, compared to the same periods in 2023.

Our hotels produced year over year declines in RevPAR, which we believe is partially a result of disruption and displacement at certain of our hotels undergoing renovation and decreased business activity in areas where some of our hotels are located.

As of September 30, 2024, we owned 214 hotels.

During the three and nine months ended September 30, 2024, the U.S.

hotel industry generally realized increases in revenue per available room, or RevPAR, and average daily rate, or ADR, compared to the same periods in 2023.

Our comparable hotels produced year over year declines in RevPAR, which we believe is partially a result of disruption and displacement at certain of our hotels undergoing renovation and decreased business activity in areas where some of our hotels are located.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2024 2023 Change 2024 2023 Change

5 unchanged sentences

Comparable Hotels Data .

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

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

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

For the three and six months ended June 30, 2024 and 2023, our comparable results exclude two hotels.

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

For each of the three months ended September 30, 2024 and 2023, our comparable results exclude one hotel that suspended operations during the periods presented.

For each of the nine months ended September 30, 2024 and 2023, our comparable results exclude two hotels.

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

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

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

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

2024 2023 Change 2024 2023 Change

6 unchanged sentences

Net Lease Portfolio .

As of June 30, 2024, we owned 749 service-focused retail net lease properties with an aggregate of 13,384,219 square feet leased to 178 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,457.

Our net lease properties were 97.3% occupied as of June 30, 2024 with a weighted (by annual minimum rent) average lease term of 8.4 years, operating under 139 brands in 21 distinct industries.

TA is our largest tenant and as of June 30, 2024, leased 175 of our travel centers under five master leases that expire in 2033 and require annual minimum rents of $259,080.

As of September 30, 2024, we owned 745 service-focused retail net lease properties with an aggregate of 13,332,131 square feet leased to 176 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,034.

Our net lease properties were 97.6% occupied as of September 30, 2024 with a weighted (by annual minimum rent) average lease term of 8.3 years, operating under 137 brands in 21 distinct industries.

TA is our largest tenant and as of September 30, 2024, leased 175 of our travel centers under five master leases that expire in 2033 and require annual minimum rents of $259,080.

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

3 unchanged sentences

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

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Three Months Ended June 30,

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Three Months Ended September 30,

2024 2023 Increase (Decrease) % Increase (Decrease)

11 unchanged sentences

Total expenses 446,495 428,528 17,967 4.2 %

Loss on sale of real estate, net (32) (62) 30 (48.4) %

Loss on equity securities, net — (593) 593 n/m

Gain on sale of real estate, net 4,105 123 3,982 n/m

Interest income 537 5,626 (5,089) (90.5) %

1 unchanged sentence

Loss on early extinguishment of debt, net (133) — (133) n/m

Loss before income tax expense and equity in (losses) earnings of an investee (70,610) (6,548) (64,062) n/m

Income tax expense (524) (5,247) 4,723 (90.0) %

Equity in (losses) earnings of an investee (2,716) 517 (3,233) n/m

Loss before income tax benefit and equity in earnings of an investee (49,941) (8,234) (41,707) n/m

Income tax benefit 77 2,242 (2,165) (96.6) %

Equity in earnings of an investee 2,963 1,864 1,099 59.0 %

Net loss $ (46,901) $ (4,128) $ (42,773) n/m

1 unchanged sentence

Net loss per common share (basic and diluted) $ (0.28) $ (0.03) $ (0.25) n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Hotel operating revenues.

The increase in hotel operating revenues is primarily a result of a hotel acquisition ($5,899) in the 2023 period and increased occupancy at certain hotels during the 2024 period ($2,801), partially offset by the sale of certain of our hotels since April 1, 2023 ($541).

The decrease in hotel operating revenues is primarily a result of our sale of certain hotels since July 1, 2023 ($2,982) and lower RevPAR at certain hotels during the 2024 period ($1,609).

Additional operating statistics of our hotels are included in the tables beginning on page 36.

Rental income.

The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($2,574), partially offset by decreases in our other net lease portfolio as a result of lower rental income recognized and the sale of certain net lease properties since April 1, 2023 ($1,564).

The decrease in rental income is primarily a result of lower rental income recognized at certain of our net lease properties ($737) and the sale of certain net lease properties since July 1, 2023 ($326).

Hotel operating expenses.

The increase in hotel operating expenses is primarily a result of a hotel acquisition ($4,361) in the 2023 period, increases in wages and benefits ($6,903), property insurance ($4,097) and other operating expenses ($4,437) in the 2024 period, partially offset by our sale of certain hotels since April 1, 2023 ($651).

The increase in hotel operating expenses is primarily a result of increases in wages and benefits ($8,995) and other operating expenses in the 2024 period ($5,727), partially offset by our sales of certain hotels since July 1, 2023 ($3,939).

Net lease operating expenses.

The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($565) and increases in other operating expenses at certain net lease properties ($727), partially offset by our sale of certain net lease properties since April 1, 2023 ($706).

The decrease in net lease operating expenses is primarily the result of our sale of certain net lease properties since July 1, 2023 ($439), partially offset by increased operating expenses at certain net lease properties in the 2024 period ($428).

Depreciation and amortization - hotels.

The increase in depreciation and amortization - hotels is primarily a result of depreciation and amortization related to capital expenditures made since April 1, 2023 and our acquisition of a hotel in June 2023 ($4,300), partially offset by certain of our depreciable assets becoming fully depreciated since April 1, 2023 ($2,360).

The decrease in depreciation and amortization - hotels is primarily a result of certain of our depreciable assets becoming fully depreciated since July 1, 2023 ($2,503) and our sale of certain hotels since July 1, 2023 ($1,102), partially offset by depreciation and amortization related to capital expenditures made since July 1, 2023 ($1,965).

Depreciation and amortization - net lease properties.

The decrease in depreciation and amortization - net lease properties is primarily a result of our sale of certain net lease properties since April 1, 2023 ($837).

The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets becoming fully depreciated since July 1, 2023 ($3,611) and our sale of certain net lease properties since July 1, 2023 ($242).

General and administrative.

The decrease in general and administrative costs is primarily due to decreases in other professional fees ($891) and business management fees ($848) in the 2024 period.

The decrease in general and administrative costs is primarily due to a decrease in business management fees in the 2024 period ($876), partially offset by an increase in other professional fees ($499).

Transaction related costs .

Transaction related costs for the 2023 period primarily consisted of costs related to hotel rebranding activity and the demolition of certain vacant properties.

Transaction related costs for the 2023 period primarily consisted of costs related to hotel rebranding activity.

Loss on asset impairment, net.

We recorded a $34,887 net loss on asset impairment during the 2024 period to reduce the carrying value of eight hotels and three net lease properties to their estimated fair value less costs to sell.

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

Loss on sale of real estate, net.

We recorded a $32 net loss on sale of real estate during the 2024 period in connection with the sale of one hotel.

We recorded a $62 net loss on sale of real estate during the 2023 period in connection with the sale of two net lease properties.

Loss on equity securities, net.

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

We recorded a $13,692 net loss on asset impairment during the 2024 period to reduce the carrying value of four hotels and two net lease properties to their estimated fair value or estimated fair value less costs to sell.

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

Gain on sale of real estate, net.

We recorded a $4,105 net gain on sale of real estate during the 2024 period in connection with the sale of six hotels and four net lease properties.

We recorded a $123 net gain on sale of real estate during the 2023 period in connection with the sale of two net lease properties.

Interest income.

4 unchanged sentences

We recorded a $133 loss on early extinguishment of debt, net in the 2024 period as a result of the redemption and purchase of certain senior notes in the 2024 period.

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

Income tax expense.

The decrease in income tax expense is primarily due to decreases in state tax expense ($2,796) and foreign tax expense ($1,927) during the 2024 period compared to the 2023 period.

Equity in (losses) earnin gs of an investee.

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

Income tax benefit.

The decrease in income tax benefit is primarily due to decreases in state tax benefit ($1,723) and foreign tax benefit ($442) during the 2024 period due to changes in our annual tax provision.

Equity in earnin gs of an investee.

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

Our net loss and net loss per common share (basic and diluted) each increased in the 2024 period compared to the 2023 period primarily due to the revenue and expense changes discussed above.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Six Months Ended June 30,

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Nine Months Ended September 30,

2024 2023 Increase (Decrease) % Increase (Decrease)

11 unchanged sentences

Total expenses 1,336,815 1,274,235 62,580 4.9 %

(Loss) gain on sale of real estate, net (2,995) 41,836 (44,831) (107.2) %

Gain on sale of real estate, net 1,110 41,959 (40,849) (97.4) %

Gain on equity securities, net — 48,837 (48,837) n/m

2 unchanged sentences

Loss on early extinguishment of debt, net (16,181) (282) (15,899) n/m

(Loss) income before income tax expense and equity in losses of an investee (142,648) 19,843 (162,491) n/m

Income tax expense (1,531) (1,467) (64) 4.4 %

(Loss) income before income tax (expense) benefit and equity in losses of an investee (192,589) 11,609 (204,198) n/m

Income tax (expense) benefit (1,454) 775 (2,229) n/m

Equity in losses of an investee (5,091) (1,840) (3,251) 176.7 %

2 unchanged sentences

Net (loss) income per common share (basic and diluted) $ (1.21) $ 0.06 $ (1.27) n/m

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Hotel operating revenues.

The increase in hotel operating revenues is primarily a result of a hotel acquisition in the 2023 period ($15,785) and increases in food and beverage and other ancillary revenue in the 2024 period ($2,184), partially offset by our sale of certain hotels since January 1, 2023 ($8,370).

The increase in hotel operating revenues is primarily a result of a hotel acquisition in the 2023 period ($16,531), partially offset by lower RevPAR at certain of our hotels ($8,643) and our sale of certain hotels since January 1, 2023 ($2,880).

Additional operating statistics of our hotels are included in the tables beginning on page 36.

Rental income.

The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($8,267), partially offset by decreases in our other net lease portfolio as a result of lower rental income recognized and the sale of certain net lease properties since January 1, 2023 ($1,656).

The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($8,107), partially offset by lower rental income recognized at certain net lease properties in the 2024 period ($1,825) and the sale of certain net lease properties since January 1, 2023 ($734).

Hotel operating expenses.

1 unchanged sentence

Net lease operating expenses.

The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($1,114) and increases in other operating expenses at certain net lease properties ($1,301), partially offset by our sale of certain net lease properties since January 1, 2023 ($1,011).

The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($1,737), partially offset by decreases in other operating expenses at certain net lease properties ($235) and our sale of certain net lease properties since January 1, 2023 ($109).

Depreciation and amortization - hotels.

The increase in depreciation and amortization - hotels is primarily a result of depreciation and amortization related to capital expenditures made since January 1, 2023 and our acquisition of a hotel in June 2023 ($8,353), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($4,712).

2023 ($10,201), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($7,076) and the sale of certain hotels since January 1, 2023 ($1,124).

Depreciation and amortization - net lease properties.

5 unchanged sentences

Loss on asset impairment, net.

We recorded a $37,338 net loss on asset impairment during the 2024 period to reduce the carrying value of eight hotels and six net lease properties to their estimated fair value less costs to sell.

We recorded a $51,030 net loss on asset impairment during the 2024 period to reduce the carrying value of ten hotels and eight net lease properties to their estimated fair value or estimated fair value less costs to sell.

We recorded a $9,517 net loss on asset impairment during the 2023 period to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.

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

We recorded a $2,995 net loss on sale of real estate during the 2024 period in connection with the sale of one hotel and three net lease properties.

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

Gain on sale of real estate, net.

We recorded a $1,110 net gain on sale of real estate during the 2024 period in connection with the sale of seven hotels and seven net lease properties.

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

Gain on equity securities, net.

7 unchanged sentences

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

Income tax expense.

The increase in income tax expense is primarily due to an increase in our state income tax expense ($122) during the 2024 period, partially offset by a decrease in our foreign sourced income tax expense ($58) during the 2024 period.

Income tax (expense) benefit.

The increase in income tax expense is primarily due to increases in our state income tax expense ($1,845) and foreign sourced income tax expense ($384) during the 2024 period.

Equity in losses of an investee.

4 unchanged sentences

Our Managers and Tenants

As of June 30, 2024, all 220 of our hotels were managed by four hotel operating companies.

Our 749 service-focused retail net lease properties were leased to 178 tenants as of June 30, 2024.

As of September 30, 2024, all 214 of our hotels were managed by four hotel operating companies.

Our 745 service-focused retail net lease properties were leased to 176 tenants as of September 30, 2024.

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

As of June 30, 2024, our hotel managers included Sonesta (195 hotels), Hyatt (17 hotels), Radisson (seven hotels) and IHG (one hotel).

As of September 30, 2024, our hotel managers included Sonesta (189 hotels), Hyatt (17 hotels), Radisson (seven hotels) and IHG (one hotel).

TA is our largest tenant (175 travel centers).

We recorded reserves for uncollectable amounts and reduced rental income by $377 and $1,042 for the three and six months ended June 30, 2024, respectively, based on our assessment of the collectability of rents.

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

We had reserves for uncollectable rents of $4,366 and $3,436 as of June 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

We recorded reserves for uncollectable amounts and reduced rental income by $515 and $1,557 for the three and nine months ended September 30, 2024, respectively, based on our assessment of the collectability of rents.

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

We had reserves for uncollectable rents of $4,872 and $3,436 as of September 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

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

4 unchanged sentences

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

Our net lease properties generated coverage of 2.25x and 2.94x as of June 30, 2024 and 2023, respectively.

Our net lease properties generated coverage of 2.16x and 2.72x as of September 30, 2024 and 2023, respectively.

Our Operating Liquidity and Capital Resources

2 unchanged sentences

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

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

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

However, as a result of economic conditions, including if the U.S.

enters an economic recession, or otherwise, our managers and tenants may become unable or unwilling to pay owner’s priority returns and rents to us when due, and, as a result, our cash flows and net income would decline and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.

The following is a summary of our sources and uses of cash flows for the periods presented:

Six Months Ended June 30,

Nine Months Ended September 30,

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

15 unchanged sentences

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

During the six months ended June 30, 2024, we funded $130,519 for capital improvements in excess of FF&E reserves available to our hotels.

We currently expect to fund $195,000 for capital improvements to certain hotels during the last six months of 2024 using cash on hand and borrowings under our revolving credit facility.

During the nine months ended September 30, 2024, we funded $208,820 for capital improvements in excess of FF&E reserves available to our hotels using cash on hand.

We currently expect to fund $85,000 for capital improvements to certain hotels during the last three months of 2024 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.

We own all the FF&E escrows for our hotels.

During the six months ended June 30, 2024, certain of our hotel managers deposited $2,597 to these accounts and spent $2,869 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of June 30, 2024, there was $5,411 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

During the nine months ended September 30, 2024, certain of our hotel managers deposited $4,402 to these accounts and spent $4,609 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of September 30, 2024, there was $5,475 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

Our net lease portfolio leases do not require FF&E escrow deposits and tenants under these leases are generally required to maintain the leased properties, including structural and non-structural components.

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

During the six months ended June 30, 2024, we funded $1,696 for capital improvements to our net lease properties.

As of June 30, 2024, we had $2,192 of unspent leasing-related obligations related to certain of our net lease tenants.

During the six months ended June 30, 2024, we sold one hotel with 84 rooms for a sale price of $3,315, excluding closing costs, and three net lease properties with an aggregate of 34,849 square feet for an aggregate sales price of $2,932, excluding closing costs.

From July 1, 2024 through August 2, 2024, we sold two hotels with an aggregate of 346 keys for an aggregate sales price of $10,800, excluding closing costs, and three vacant net lease properties with an aggregate of 9,388 square feet for an aggregate sales price of $1,800, excluding closing costs.

As of August 2, 2024, we have entered into agreements to sell 16 hotels with an aggregate of 1,930 keys for an aggregate sales price of $113,200, excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $1,250, excluding closing costs.

During the nine months ended September 30, 2024, we funded $3,931 for capital improvements to our net lease properties.

As of September 30, 2024, we had $1,889 of unspent leasing-related obligations related to certain of our net lease tenants.

During the nine months ended September 30, 2024, we sold seven hotels with an aggregate of 906 keys for an aggregate sales price of $48,215, excluding closing costs, and seven net lease properties with an aggregate of 86,937 square feet for an aggregate sales price of $6,532, excluding closing costs.

From October 1, 2024 through November 4, 2024, we sold five hotels with an aggregate of 642 keys for an aggregate sales price of $32,200, excluding closing costs.

As of November 4, 2024, we have entered into agreements to sell eight hotels with an aggregate of 985 keys for an aggregate sales price of $44,150, excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $1,000, excluding closing costs.

These pending sales are subject to conditions;

2 unchanged sentences

We believe it is probable that the sales of these properties will be completed within one year.

We expect to use the net sales proceeds from these sales for general business purposes.

In October 2024, we announced our plan to sell 114 focused service hotels managed by Sonesta, with an aggregate of 14,925 keys and an aggregate net carrying value of $850,000.

We expect to sell these hotels in 2025 and use the net sales proceeds from these sales to repay debt.

We expect that the sales of these hotels will result in savings of approximately $725,000 in capital expenditures, which was projected to be spent over a six year period.

In March 2024, we made a $3,392 pro rata capital contribution to Sonesta to support its growth initiatives, including its franchising efforts, using cash on hand.

We continue to maintain our 34% ownership in Sonesta after giving effect to this contribution.

During the six months ended June 30, 2024, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

During the nine months ended September 30, 2024, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

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

1 unchanged sentence

April 11, 2024 April 22, 2024 May 16, 2024 0.20 33,152

July 11, 2024 July 22, 2024 August 15, 2024 0.20 33,178

$ 0.60 $ 99,484

On July 11, 2024, we declared a regular quarterly distribution to common shareholders of record as of July 22, 2024 of $0.20 per common share, or approximately $33,178.

We expect to pay this distribution on or about August 15, 2024 using cash on hand.

On October 16, 2024, we declared a regular quarterly distribution to common shareholders of record as of October 28, 2024 of $0.01 per common share, or approximately $1,666.

We expect to pay this distribution on or about November 14, 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 a $650,000 secured revolving credit facility which is governed by a credit agreement.

3 unchanged sentences

The maturity date of our revolving credit 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 by two additional six-month periods.

Interest payable on drawings under our revolving credit facility is based on SOFR plus a margin ranging from 1.50% to 3.00% based on our leverage ratio, as defined in our credit agreement, which was 2.50% as of June 30, 2024.

As collateral for all loans and other obligations under the 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 72 properties, including 69 hotels and three net lease properties, with an aggregate undepreciated carrying value of $1,738,959 as of June 30, 2024.

As collateral for all loans and other obligations under the 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 70 properties, including 67 hotels and three net lease properties, with an aggregate undepreciated carrying value of $1,720,032 as of September 30, 2024.

During the three months ended September 30, 2024, we sold two hotels that served as collateral under our revolving credit facility.

In connection with the sales of these hotels, the hotels were released from the collateral pool in accordance with the terms of our revolving credit facility.

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

As of June 30, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.83% and 7.64%, respectively.

We had no borrowings outstanding under our revolving credit facility as of June 30, 2024.

As of September 30, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.46% and 7.93%, respectively.

We had no borrowings outstanding under our revolving credit facility as of September 30, 2024.

Availability under our revolving credit facility is partially based on the performance of the properties serving as collateral under the facility.

Based on recent and near term expectations of performance of certain of the collateral properties, we and our lenders amended the credit facility in October 2024 to temporarily reduce the required collateral property debt yield from 12% to 8.5% from September 30, 2024 through December 31, 2024, and increase the required collateral property debt yield to 9.5% for the quarter ending March 31, 2025;

10% for the quarter ending June 30, 2025;

11% for the quarter ending September 30, 2025;

and 12% for the quarter ending December 31, 2025 and thereafter.

Subject to meeting these revised collateral property debt yield levels and meeting other conditions, we currently have full access to undrawn amounts under our revolving credit facility.

In June 2024 , we issued $700,000 aggregate principal amount of the 2029 Notes and $500,000 aggregate principal amount of the 2032 Notes in underwritten public offerings.

The aggregate net proceeds from these notes were $1,162,284, after underwriting discounts and other estimated offering expenses.

The aggregate net proceeds from these offerings were $1,162,077, after underwriting discounts and other offering expenses.

These 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 our foreign subsidiaries and certain other excluded subsidiaries.

Such other excluded subsidiaries include, but are not limited to, subsidiaries whose equity has been pledged to secure borrowings under our credit agreement and our 8.625% senior secured notes due 2031 and subsidiaries whose assets secure our net lease mortgage notes.

We used the net proceeds from these notes and cash on hand to redeem all of our outstanding 7.50% senior unsecured notes due 2025 and purchase and satisfy and discharge all of our outstanding 4.50% senior unsecured notes due 2025.

Our debt maturities (other than our revolving credit facility) as of June 30, 2024 were as follows:

We used the net proceeds from the issuance of these notes and cash on hand to redeem all of our outstanding 7.50% senior unsecured notes due 2025 and purchase and satisfy and discharge all of our outstanding 4.50% senior unsecured notes due 2025.

Our debt maturities (other than our revolving credit facility) as of September 30, 2024 were as follows:

Year Maturity

6 unchanged sentences

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.

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

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

10 unchanged sentences

Debt Covenants

Our debt obligations at June 30, 2024 consisted of $5,075,000 aggregate principal amounts of senior notes and $607,590 aggregate principal amounts of mortgage notes secured by 308 net lease retail properties.

Our debt obligations at September 30, 2024 consisted of $5,075,000 aggregate principal amounts of senior notes and $607,101 aggregate principal amounts of mortgage notes secured by 308 net lease retail properties.

For further information regarding our indebtedness, see Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

2 unchanged sentences

Our credit agreement, net lease mortgage notes, 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 June 30, 2024, we believe we were in compliance with all of the covenants under our indentures and their supplements, net lease mortgage notes and our credit agreement.

As of September 30, 2024, 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 secured and unsecured notes as of June 30, 2024:

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 September 30, 2024:

Actual Results Covenant Requirement

5 unchanged sentences

4.09x Minimum of 2.20x

As of June 30, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $10,618,426 and assets encumbered under our revolving credit facility, serving as collateral for our net lease mortgage notes or secured senior notes represented $3,543,066 of adjusted total assets, as defined in our senior notes indentures.

As of September 30, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $10,584,590 and assets encumbered under our revolving credit facility, serving as collateral for our net lease mortgage notes or secured senior notes represented $3,517,899 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 $4,445,611, $1,599,434, $844,808 and $176,838 of adjusted total assets, respectively.

14 unchanged sentences

Our remaining $2,425,000 of senior unsecured notes do not have the benefit of any guarantees.

A subsidiary guarantor’s guarantee of the 2027 Notes, the 2029 Notes and the 2032 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.

circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.

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

2 unchanged sentences

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

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

Real estate properties, net (1)

5 unchanged sentences

Other liabilities 408,025 395,433

Six Months Ended June 30, 2024

(1) Real estate properties, net as of June 30, 2024 includes $163,130 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

Nine Months Ended September 30, 2024

(1) Real estate properties, net as of September 30, 2024 includes $155,782 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

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

11 unchanged sentences

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

As of June 30, 2024, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 148 distinct brands across 22 industries.

As of September 30, 2024, 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

6 unchanged sentences

of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2024 2023 Change 2024 2023 Change 2024 2023 Change

15 unchanged sentences

Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2024 2023 Change 2024 2023 Change 2024 2023 Change

13 unchanged sentences

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

For the three and six months ended June 30, 2024 and 2023, 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.

For each of the three months ended September 30, 2024 and 2023, our comparable results exclude one hotel that suspended operations during the periods presented.

For each of the nine months ended September 30, 2024 and 2023, our comparable results exclude two hotels.

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

of Rooms or Suites Occupancy ADR RevPAR

1 unchanged sentence

of Hotels Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

Brand 2024 2023 Change 2024 2023 Change 2024 2023 Change

15 unchanged sentences

Service Level No.

of Hotels Six Months Ended

June 30, Six Months Ended

of Hotels Nine Months Ended

September 30, Nine Months Ended

September 30,

Brand 2024 2023 Change 2024 2023 Change 2024 2023 Change

12 unchanged sentences

All Hotels Total/Average 214 36,875 64.1 % 64.5 % (0.4) pts $141.73 $142.87 (0.8) % $ 90.84 $ 92.09 (1.4) %

* Includes results of all hotels owned as of June 30, 2024.

* Includes results of all hotels owned as of September 30, 2024.

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

Net Lease Portfolio

As of June 30, 2024, our net lease properties were 97.3% occupied and we had 20 properties available for lease.

During the six months ended June 30, 2024, we entered into lease renewals for 243,505 rentable square feet (26 properties) at weighted (by rentable square feet) average rents that were 12.2% below the prior rents for the same space.

As of September 30, 2024, our net lease properties were 97.6% occupied and we had 18 properties available for lease.

During the nine months ended September 30, 2024, we entered into lease renewals for 453,030 rentable square feet (44 properties) at weighted (by rentable square feet) average rents that were 5.2% below the prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 5.4 years.

5 unchanged sentences

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

As of June 30, 2024, our net lease tenants operated across 139 brands.

As of September 30, 2024, our net lease tenants operated across 137 brands.

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

16 unchanged sentences

(2) See page 30 for our definition of coverage.

(3) Rent coverage information provided by tenant is for all 175 sites on a consolidated basis and is as of June 30, 2024.

(4) Consists of 129 distinct brands with an average investment of $3,029 and average annual minimum rent of $200 per property.

As of June 30, 2024, our top ten net lease tenants based on our annualized minimum rent are listed below:

(3) Rent coverage information provided by tenant is for all 175 sites on a consolidated basis and is as of September 30, 2024.

(4) Consists of 127 distinct brands with an average investment of $3,034 per property and average annual minimum rent of $201 per property.

As of September 30, 2024, our top ten net lease tenants based on our annualized minimum rent are listed below:

Tenant Brand Affiliation No.

25 unchanged sentences

(3) TA is our largest tenant.

We lease 175 travel centers (131 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.

As of September 30, 2024, we leased 175 travel centers (131 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.

1 unchanged sentence

guarantees payments under each of the five master leases.

The aggregate guaranty as of June 30, 2024 was approximately $3,037,475.

The aggregate guaranty as of September 30, 2024 was approximately $3,037,475.

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

1 unchanged sentence

5, respectively.

Rent coverage is as of June 30, 2024.

Rent coverage is as of September 30, 2024.

(4) Consists of 166 tenants with an average investment of $2,742 and an average annual minimum rent of $180 per property.

As of June 30, 2024, our net lease tenants operated across 21 distinct industries within the service-focused retail sector of the U.S.

As of September 30, 2024, our net lease tenants operated across 21 distinct industries within the service-focused retail sector of the U.S.

of Properties Investment (1)

8 unchanged sentences

Grocery Stores 19 129,152 2.6% 9,305 2.4 % 3.63 x

Medical, Dental Office 70 104,042 2.1% 8,449 2.2 % 3.42 x

Movie Theaters 15 139,569 2.8% 8,410 2.2 % 2.08 x

Medical, Dental Office 70 104,042 2.1% 8,210 2.2 % 3.57 x

Automotive Equipment and Services 64 107,054 2.1% 7,799 2.1 % 5.14 x

Automotive Dealers 8 62,656 1.2% 4,973 1.3 % 6.38 x

Educational Services 8 54,759 1.1% 4,365 1.1 % 1.55 x

Entertainment 4 61,436 1.2% 4,590 1.2 % 2.52 x

General Merchandise Stores 4 55,457 1.1% 3,983 1.0 % 3.07 x

Educational Services 7 44,820 0.9% 3,563 0.9 % 1.66 x

Building Materials 29 34,006 0.7% 2,859 0.8 % 7.42 x

10 unchanged sentences

(2) See page 30 for our definition of coverage.

(3) Rent coverage for TA is as of June 30, 2024.

(3) Rent coverage for TA is as of September 30, 2024.

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

As of June 30, 2024, lease expirations at our net lease properties by year are as follows:

As of September 30, 2024, lease expirations at our net lease properties by year are as follows:

Number of Properties Square Feet Annualized Minimum Rent Expiring Percent of Total Annualized Minimum Rent Expiring Cumulative Percent of Total Annualized Minimum Rent Expiring

23 unchanged sentences

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

As of June 30, 2024, shown below is the list of our top ten states where our net lease properties are located.

As of September 30, 2024, 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 annualized minimum rents.

1 unchanged sentence

Texas 55 1,168,354 $ 33,793 8.9%

Ohio 39 1,368,924 27,476 7.2%

Illinois 53 972,329 27,341 7.2%

Ohio 39 1,368,924 26,685 7.0%

California 22 399,045 25,870 6.8%

15 unchanged sentences

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 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.

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 on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us.

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

2 unchanged sentences

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

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 2024 and 2023 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts):

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

Our calculations of FFO and Normalized FFO for the three and nine months ended September 30, 2024 and 2023 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts):

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

2024 2023 2024 2023

2 unchanged sentences

Loss on asset impairment, net 13,692 512 51,030 9,517

Loss (gain) on sale of real estate, net 32 62 2,995 (41,836)

Loss (gain) on equity securities, net — 593 — (48,837)

Gain on sale of real estate, net (4,105) (123) (1,110) (41,959)

Gain on equity securities, net — — — (48,837)

Adjustments to reflect our share of FFO attributable to an investee 1,045 972 3,032 3,003

FFO 52,736 91,731 131,604 221,376

Transaction related costs — 931 — 1,818

Loss on early extinguishment of debt, net 133 — 16,181 282

Adjustments to reflect our share of Normalized FFO attributable to an investee — 263 — 791

Transaction related costs — 115 — 1,933

Normalized FFO $ 52,869 $ 92,109 $ 147,785 $ 224,382

6 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis