SERVICE PROPERTIES TRUST : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion should be read in conjunction with our condensed
consolidated financial statements and notes thereto included in Part I, Item 1
of this Quarterly Report on Form 10-Q and with our 2019 Annual Report.
Overview (dollar amounts in thousands, except share amounts and per-room hotel
data)
We are a REIT organized under the laws of the State of Maryland. As of June 30,
2020, we owned 1,138 properties in 47 states, the District of Columbia, Canada
and Puerto Rico.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic and, in response to the outbreak, the U.S. Health and Human
Services Secretary declared a public health emergency in the United States and
many states and municipalities declared public health emergencies. The virus
that causes COVID-19 has continued to spread throughout the United States and
the world. Various governmental and market responses attempting to contain and
mitigate the spread of the virus that causes COVID-19 have negatively impacted,
and continue to negatively impact, the global economy, including the U.S.
economy. As a result, most market observers believe the global economy and the
U.S. economy are in a recession. States and municipalities across the United
States have been allowing certain businesses to reopen and easing certain
restrictions they had previously implemented in response to the COVID-19
pandemic, often in stages that are phased in over time. Recently, economic data
have indicated that the U.S. economy has increasingly improved since the lowest
periods experienced in March and April 2020. However, certain areas of the
United States have experienced increased numbers of COVID-19 infections
following the reopenings of their economies and easing of restrictions and, in
some cases, certain states have imposed or re-imposed closings of certain
business activities and other restrictions in response. It is unclear whether
the increases in the number of COVID-19 infection outbreaks will continue and/or
amplify or whether any "second wave" of COVID-19 infections will occur in the
United States or elsewhere and, if so, what the impact of that would be on human
health and safety, the economy, our tenants or our business.
Our business is focused on lodging and service retail properties, which have
been some of the industries most severely and negatively impacted by the effects
of the pandemic. These conditions have materially and adversely impacted our
business, operations, financial results and liquidity. In particular, a variety
of factors related to the COVID-19 pandemic have caused, and are expected to
continue to cause, a decline in the lodging industry, including, but not limited
to, (i) restrictions on travel and public gatherings imposed by governmental
entities and employers, (ii) the closure of hotels, restaurants and other
venues, and (iii) the postponement or cancellation of industry conventions and
conferences, and other demand drivers of our hotels, (iv) the closure of
amusement parks, museums and other tourist attractions, (v) the closure of
colleges and universities, and (vi) negative public perceptions of travel and
public gatherings in light of the perceived risks associated with the COVID-19
pandemic. The reduced economic activity resulting from these factors has
severely and negatively impacted our operations. Our hotels have experienced a
significant decline in occupancy and revenues.
We suspended operations at 19 hotels as a result of the COVID-19 pandemic and
related declines in business activity (17 full-service hotels and two extended
stay hotels) during March and April 2020. In June 2020, five of the closed
hotels resumed operations and, as of August 6, 2020, 9 of these 19 hotels have
resumed operations. Hotel occupancies reached all-time lows during the second
quarter of 2020 as a result weak demand resulting from various forms of
stay-at-home restrictions being enforced throughout the United States due to the
COVID-19 pandemic. Occupancy at our hotels was 21.0% in April 2020, 26.8% in May
2020 and 35.5% in June 2020. Hotel performance has gradually improved since the
lows seen in April 2020 as travel demand slowly recovered. For the 28 days ended
July 25, 2020, occupancy at our hotels was 42.4%.
We continue to work with our operators to mitigate the impact on our hotel
operations as a result of general economic and industry conditions relating to
the COVID-19 pandemic, including efforts to reduce operating expenses such as,
but not limited to, staffing reductions and furloughs, utility consumption
reductions, purchasing reductions and eliminations, service contract reductions
and eliminations, food service and exercise facilities closures, and reduction
and elimination of certain marketing expenditures. We have also agreed to
suspend contributions to our FF&E reserves under certain of our agreements.
These efforts to reduce operating expenses have been partially offset by
additional expenses we and our hotel managers have incurred to change the
operations and procedures at our hotels in response to the COVID-19 pandemic.
Cleaning protocols, safety standards and other operational considerations have
been modified that have resulted in, and which we expect will continue to result
in, increased operating expenses and may require additional capital expenditures
at our hotels.

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As a result of the depressed activity at our hotels and expected losses, several
of our operators have requested working capital advances from us to pay
operating expenses for our hotels. During the six months ended June 30, 2020, we
advanced an aggregate of $80,474 of working capital to certain of our hotel
operators to cover projected operating losses. We advanced $37,000 to IHG,
$30,000 to Marriott, $7,351 to Sonesta, $2,423 to Wyndham and $3,700 to Hyatt.
Under certain of our hotel agreements, working capital advances are reimbursable
to us from a share of future cash flows from the applicable hotel operations in
excess of the minimum returns due to us and certain management fees pursuant to
the terms of the respective agreements. We may receive additional requests for
working capital advances if lodging activity continues to be depressed.
On July 23, 2020, we sent IHG a notice of default and termination of the IHG
agreement as a result of non-payment of our minimum returns. For information
regarding this default and termination see Note 6 to our condensed consolidated
financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our largest tenant, TA, is current on its rent obligations to us as of August 6,
2020. The travel centers operated by TA primarily provide goods and services to
the trucking industry, and demand for trucking services in the United States
generally reflects the amount of commercial activity in the U.S. economy. When
the U.S. economy declines, demand for goods moved by trucks declines, and in
turn demand for the products and services provided at our travel centers
typically declines. Although TA's services have been designated "essential
services" by many public authorities, and as a result, all of our travel centers
operated by TA are open and operating, TA has also experienced negative impacts
from the COVID-19 pandemic, including closing most of its full service
restaurants, and implementing social distancing and other measures at its travel
center stores. As a result, TA has experienced declines in its business
activity. TA had begun reopening some of its restaurants in May 2020 as certain
states allowed restaurants to reopen. However, as a result of the recent
increase in COVID-19 infections in several states, TA is closing or re-closing
certain of its restaurants.
In addition, some of our other net lease retail tenants have experienced
closures and substantial declines in their businesses as a result of the
COVID-19 pandemic. Some of these tenants have sought rent relief from us and we
expect these closures, declines and requests to continue or increase in the
future. During the three months ended June 30, 2020, we collected 58.70% of the
rents due to us for those months from our other net lease tenants, including
45.6% in April 2020, 57.6% in May 2020 and 74.6% in June 2020. We have entered
into rent deferral agreements for an aggregate of $11,312 of rent with 80 net
lease retail tenants with leases requiring an aggregate of $59,288 of annual
minimum rents. During July 2020, we collected 80.0% of the rents due to us for
the month from our other net lease tenants. Generally these rent deferrals are
for one to four months of rent and will be payable by the tenants over a 12 to
24 month period beginning in September 2020. If the economic downturn continues
for a prolonged period, our operators and tenants and their businesses may
become increasingly negatively impacted, which may result in our operators and
tenants seeking additional assistance from us regarding their obligations owed
to us, their being unable or unwilling to pay us returns or rents, their ceasing
to pay us returns or rents and their ceasing to continue as going concerns. For
information regarding our net lease tenants and our assessment of collectability
of outstanding rent amounts, see Note 6 to our condensed consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We are continuing to closely monitor the impact of the COVID-19 pandemic on all
aspects of our business, including:
•      our operators and tenants and their ability to withstand the current

economic conditions and continue to pay us returns and rents;

•our operations, liquidity and capital needs and resources; •conducting financial modeling and sensitivity analyses; • actively communicating with our operators and tenants and other key

constituents and stakeholders in order to help assess market conditions,

opportunities, best practices and mitigate risks and potential adverse

impacts; and

• monitoring, with the assistance of counsel and other specialists, possible

government relief funding sources and other programs that may be available

       to us or our operators and tenants to enable us and them to operate
       through the current economic conditions and enhance our operators' and
       tenants' ability to pay us returns and rents.


Despite the circumstances outlined above, we believe that our current financial
resources and our expectations as to the future performance of the lodging
industry and the industries in which our net lease retail tenants operate will
enable us to withstand the COVID-19 pandemic and its aftermath. As of August 6,
2020, we have:

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• $967,911 of availability under our revolving credit facility and we have

received a limited waiver of compliance with certain financial covenants

       under our credit agreement to ensure we have full access to undrawn
       amounts under such credit facility, subject to minimum liquidity
       requirements,

• reduced our quarterly cash distributions on our common shares to $0.01 per

share; a savings of $87,220 per quarter compared to prior distribution

levels,

• raised $788,002 of net proceeds from the issuance of our 7.5% senior notes

due 2025,

• repurchased $350,000 principal amount of our $400,000 of 4.25% senior

       notes due 2021,


•      raised $62,858 in net proceeds from asset sales and have entered

agreements to sell additional properties for an aggregate sales price of

$55,625,

• no debt maturities during the remainder of 2020 and the next debt maturity

       being $50,000 of our senior notes due in February 2021, and


•      prioritized our projected capital improvement spending to projects in
       progress, maintenance capital and contractual obligations.


We do not have any employees and the personnel and various services we require
to operate our business are provided to us by RMR LLC pursuant to our business
and property management agreements with RMR LLC. RMR LLC has implemented
enhanced cleaning protocols and social distancing guidelines at its corporate
headquarters and its regional offices, as well as business continuity plans to
ensure RMR LLC employees remain safe and able to support us and other companies
managed by RMR LLC or its subsidiaries, including providing appropriate
information technology such as notebook computers, smart phones, computer
applications, information technology security applications and technology
support.
There are extensive uncertainties surrounding the COVID-19 pandemic. These
uncertainties include among others:
• the duration and severity of the negative economic impact;

• the strength and sustainability of any economic recovery;

• the timing and process for how federal, state and local governments and

other market participants may oversee and conduct the return of economic

       activity when the COVID-19 pandemic abates, such as what continuing
       restrictions and protective measures may remain in place or be added and
       what restrictions and protective measures may be lifted or reduced in

order to foster a return of increased economic activity in the United

States; and

• whether, following a recommencing of more normal levels of economic

activities, the United States or other countries experience "second waves"

of COVID-19 infection outbreaks and, if so, the responses of governments,

businesses and the general public to those events.

As a result of these uncertainties, we are unable to determine what the ultimate
impact will be on our operations and our operators and other stakeholders'
businesses, operations, financial results and financial position. For further
information and risks relating to the COVID-19 pandemic on us and our business,
see Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.
Acquisitions and Dispositions
On September 20, 2019, we acquired 767 properties with 12.4 million rentable
square feet for an aggregate transaction value of $2,482,382, or the SMTA
Transaction. The portfolio consisted of 767 service-oriented retail properties
net leased to tenants in 23 distinct industries and 163 brands including quick
service and casual dining restaurants, movie theaters, health and fitness,
automotive parts and services and other service-oriented and necessity-based
industries across 45 states. During the three months ended December 31, 2019, we
sold 130 net lease properties that we acquired in the SMTA Transaction in 28
states with 2,773,241 square feet and annual minimum rent of $43,180 for
$513,012.

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We have entered agreements to sell eight Marriott branded hotels with 834 rooms
in four states with a net carrying value of $34,956 for an aggregate sales price
of $45,250.  We have entered an agreement to sell one Wyndham branded hotel with
344 rooms with a net carrying value of $3,365 for a sales price of $3,500.  We
expect these sales to be completed in the fourth quarter of 2020. We expect to
use the net sales proceeds from any hotels sold to repay outstanding
indebtedness. The amount of minimum returns due from Marriott will be reduced by
the amount allocated to the Marriott hotels, which was $7,935 as of June 30,
2020. The sales of these hotels are subject to various contingencies;
accordingly, we cannot provide any assurance that we will sell any of these nine
hotels.
On February 27, 2020, we entered into a transaction agreement with Sonesta
pursuant to which we and Sonesta modified our then existing business
arrangements. See Note 6 for further information regarding our Sonesta agreement
in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Management agreements and leases. At June 30, 2020, we owned 329 hotels operated
under six agreements. We leased 328 of these hotels to our wholly owned TRSs
that are managed by hotel operating companies, and the one remaining hotel is
leased to a hotel operating company. We own 809 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
condensed consolidated statements of comprehensive income include hotel
operating revenues and hotel operating expenses from our managed hotels and
rental income and other operating expenses from our leased hotel and net lease
properties.
Many of our operating agreements and net leases contain security features, such
as guarantees and security deposits, which are intended to protect minimum
returns and rents due to us in accordance with our agreements regardless of
property performance. However, the effectiveness of various security features to
provide us uninterrupted receipt of minimum returns and rents is not assured,
especially if economic conditions generally decline for a prolonged period.
Also, certain of the guarantees that we hold are limited in amount and duration
and do not provide for payment of the entire amount of the applicable minimum
returns. During the three and six months ended June 30, 2020, we utilized
$37,862 and $100,170, respectively, of hotel operator security deposits, and
during the three and six months ended June 30, 2020, we utilized $46,686 and
$54,883, respectively, of the guarantees provided by certain of our hotel
operators under their respective operating agreements.  As of June 30, 2020, we
had $8,992 of security deposits and $35,988 of guarantees available to cover
shortfalls in hotel cash flows available to pay the minimum returns due to us
from certain hotel operators. As of August 6, 2020, we have fully utilized the
remaining security deposit we held from IHG and fully utilized the security
deposit we held and exhausted the $30,000 limited guarantee under our Marriott
agreement. Based on our current estimates, we project we will exhaust the
guaranty from Hyatt in the fourth quarter of 2020.  If one or more of our hotel
operators are unwilling or unable to fund our minimum returns and rents, we may
have the right to terminate our agreements with those operators and change the
operator of those hotels.
Hotel Portfolio
Comparable hotels data. We present revenue per available room, or RevPAR,
average daily rate, or 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 three months ended June 30, 2020 and
2019, we excluded 23 hotels from our comparable results. Two of these hotels
were not owned for the entire period, two were closed for major renovations and
19 suspended operations as a result of the COVID-19 pandemic during part of the
periods presented. For the six months ended June 30, 2020 and 2019, we excluded
25 hotels from our comparable results. Three of these hotels were not owned for
the entire period, three were closed for major renovations and 19 suspended
operations as a result of the COVID-19 pandemic during part of the periods
presented.
Hotel operations. During the three and six months ended June 30, 2020, the U.S.
hotel industry generally realized decreases in ADR and RevPAR and declines in
occupancy compared to the same periods in 2019. During the three and six months
ended June 30, 2020, our 306 comparable hotels that we owned continuously since
January 1, 2019 produced aggregate year over year decreases in ADR, occupancy
and RevPAR. We believe these results are primarily due to the market disruption
resulting from the COVID-19 pandemic.
For the three months ended June 30, 2020 compared to the same period in 2019 for
our 306 comparable hotels: ADR decreased 31.5% to $83.47; occupancy decreased
46.0 percentage points to 31.2%; and RevPAR decreased 72.3% to $26.04.
For the three months ended June 30, 2020 compared to the same period in 2019 for
all our 329 hotels: ADR decreased 36.4% to $84.34; occupancy decreased 49.4
percentage points to 27.8%; and RevPAR decreased 77.1% to $23.45.

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For the six months ended June 30, 2020 compared to the same period in 2019 for
our 304 comparable hotels: ADR decreased 14.1% to $103.85; occupancy decreased
27.8 percentage points to 44.4%; and RevPAR decreased 47.2% to $46.11.
For the six months ended June 30, 2020 compared to the same period in 2019 for
all our 329 hotels: ADR decreased 16.1% to $110.24; occupancy decreased 30.4
percentage points to 41.9%; and RevPAR decreased 51.4% to $46.19.
Net Lease Portfolio. As of June 30, 2020, we owned 809 net lease
service-oriented retail properties with 13.7 million square feet and annual
minimum rent of $369,423, which represented approximately 38% of our total
annual minimum returns and rents. Our net lease portfolio was 99% occupied as of
June 30, 2020 by 180 tenants with a weighted (by annual minimum rent) lease term
of 11.1 years, operating under 129 brands in 22 distinct industries. TA is our
largest tenant. As of June 30, 2020, we leased 179 travel centers to TA under
five master leases that expire between 2029 and 2035 and require annual minimum
rents of $246,110 which represents 25.6% of our consolidated annual minimum
rents and returns.
Additional details of our hotel operating agreements and our net lease
agreements are set forth in Notes 6 and 10 to our condensed consolidated
financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and
in the table and notes thereto on pages 45 through 47 below.

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Results of Operations (dollar amounts in thousands, except share amounts)
Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30,
2019
                                                    For the Three Months Ended June 30,
                                                                         Increase     % Increase
                                              2020          2019        (Decrease)    (Decrease)
Revenues:
Hotel operating revenues                   $ 117,356     $ 541,215     $ (423,859 )      (78.3 )%
Rental income - hotels                         1,992         5,074         (3,082 )      (60.7 )%
Rental income - net lease portfolio           95,592        63,143         32,449         51.4  %
Total rental income                           97,584        68,217         29,367         43.0  %
FF&E reserve income                                -         1,130         (1,130 )     (100.0 )%

Expenses:
Hotel operating expenses                      46,957       380,431       (333,474 )      (87.7 )%
Other operating expenses                       3,565         1,272          2,293        180.3  %
Depreciation and amortization - hotels        67,898        66,900            998          1.5  %
Depreciation and amortization - net
lease portfolio                               59,529        32,296         27,233         84.3  %
Total depreciation and amortization          127,427        99,196         28,231         28.5  %
General and administrative                    11,302        12,207           (905 )       (7.4 )%
Loss on asset impairment                      28,514             -         28,514          n/m

Other operating income:
Loss on sale of real estate                   (2,853 )           -         (2,853 )        n/m
Gain on insurance settlement                  62,386             -         62,386          n/m
Dividend income                                    -           876           (876 )     (100.0 )%
Unrealized gains (losses) on equity
securities, net                                3,848       (60,788 )       64,636       (106.3 )%
Interest income                                   15           449           (434 )      (96.7 )%
Interest expense                             (72,072 )     (49,601 )      (22,471 )       45.3  %
Loss on early extinguishment of debt          (6,970 )           -         (6,970 )        n/m
Income (loss) before income taxes and
equity earnings of an investee               (18,471 )       8,392        (26,863 )     (320.1 )%
Income tax benefit (expense)                 (16,660 )         260        (16,920 )   (6,507.7 )%
Equity in earnings (losses) of an
investee                                      (2,218 )         130         (2,348 )   (1,806.2 )%
Net income (loss)                          $ (37,349 )   $   8,782     $  (46,131 )     (525.3 )%

Weighted average shares outstanding
(basic)                                      164,382       164,284             98          0.1  %
Weighted average shares outstanding
(diluted)                                    164,382       164,326          

56 n/m

Net income (loss) per common share
(basic and diluted)                        $   (0.23 )   $    0.05     $    

(0.28 ) (560.0 )%

References to changes in the income and expense categories below relate to the
comparison of consolidated results for the three months ended June 30, 2020,
compared to the three months ended June 30, 2019.
Hotel operating revenues. The decrease in hotel operating revenues is a result
of decreased revenues at certain of our managed hotels primarily as a result of
lower occupancies principally as a result of the COVID-19 pandemic ($424,171),
partially offset by the conversion of one hotel from a leased to a managed
property ($312). Additional operating statistics of our hotels are included in
the table on page 47.
Rental income - hotels. The decrease in rental income - hotels is primarily the
result of the conversion of one hotel from a leased to a managed property during
the 2020 period ($3,082). Rental income - hotels for the 2019 period includes
$81 of adjustments to record rent on a straight-line basis. There were no such
adjustments to rental income - hotels for the 2020 period.

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Rental income - net lease portfolio. The increase in rental income - net lease
portfolio is primarily a result of rents from properties we acquired pursuant to
the SMTA Transaction ($32,516). We increased rental income by $875 and reduced
rental income by $3,271 for the 2020 and 2019 periods, respectively, to record
scheduled rent changes under certain leases, the deferred rent obligations
payable to us under our TA leases and the estimated future payments to us under
our TA leases for the cost of removing underground storage tanks on a
straight-line basis.
FF&E reserve income. FF&E reserve income represents amounts paid by certain of
our hotel tenants into restricted accounts owned by us to accumulate funds for
future capital expenditures. The terms of our hotel leases require these amounts
to be calculated as a percentage of total sales at our hotels. We do not report
the amounts, if any, which are escrowed as FF&E reserves for our managed hotels
as FF&E reserve income. The decrease in FF&E reserve income is the result of the
suspension of FF&E reserve contributions for our one leased hotel and the
conversion of one hotel from a leased hotel to a managed property in the 2020
period.
Hotel operating expenses. The decrease in hotel operating expenses is a result
of an increase in the amount of guaranty and security deposit utilization under
certain of our hotel management agreements ($128,165), a decrease at certain
managed hotels as a result of lower occupancies primarily driven by the COVID-19
pandemic ($107,648), a decrease in wage and benefit costs, sales and marketing
expenses and other operating costs at certain of our managed hotels ($89,832),
and a decrease in the amount of guaranty and security deposit replenishments
under certain of our hotel management agreements ($9,208), partially offset by
an increase in real estate taxes at certain of our hotels ($578), our hotel
acquisitions since January 1, 2019 ($490), and the conversion of one hotel from
a leased to managed property during the 2020 period ($311). Certain guarantees
and security deposits which have been applied to past payment deficits may be
replenished from a share of subsequent cash flows from the applicable hotel
operations pursuant to the terms of the respective operating agreements. When
our guarantees and our security deposits are replenished by cash flows from
hotel operations, we reflect such replenishments in our condensed consolidated
statements of comprehensive income as an increase to hotel operating expenses.
Hotel operating expenses were increased by $9,208 for the three months ended
June 30, 2019. There were no such replenishments for the three months ended
June 30, 2020. When our guarantees and security deposits are utilized to cover
shortfalls of hotel cash flows from the minimum payments due to us, we reflect
such utilizations in our condensed consolidated statements of comprehensive
income as a decrease to hotel operating expenses. Hotel operating expenses were
decreased by $121,155 for the utilization of our security deposits and
guarantees during the three months ended June 30, 2020. There were no such
utilizations for the three months ended June 30, 2019.
Other operating expenses. The increase in other operating expenses is a result
of operating expenses we pay at certain properties we acquired as part of the
SMTA Transaction in September 2019.
Depreciation and amortization - hotels. The increase in depreciation and
amortization - hotels is a result of the depreciation and amortization of
improvements acquired with funds from our FF&E reserves or directly funded by us
since January 1, 2019 ($6,020) and our hotel acquisitions since January 1, 2019
($471), partially offset by certain of our depreciable assets becoming fully
depreciated since January 1, 2019 ($5,493).
Depreciation and amortization - net lease portfolio. The increase in
depreciation and amortization - net lease portfolio is a result of the
depreciation and amortization of properties we acquired as part of the SMTA
Transaction ($27,816) and the depreciation and amortization of net lease
improvements we purchased since January 1, 2019 ($2,486), partially offset by
certain of our depreciable assets becoming fully depreciated since January 1,
2019 ($3,069).
General and administrative. The decrease in general and administrative costs is
primarily due to a decrease in business management fees in the 2020 period.
Loss on asset impairment. We recorded a $28,514 loss on asset impairment during
the three months ended June 30, 2020 to reduce the carrying value of 17 hotel
and four net lease properties to their estimated fair value.
Loss on sale of real estate. We recorded a $2,853 net loss on sale of real
estate during the three months ended June 30, 2020 in connection with the sales
of four net lease properties.
Gain on insurance settlement. We recorded a $62,386 gain on insurance settlement
during the three months ended June 30, 2020 for insurance proceeds received for
our 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. See Note 5 to our condensed consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further
information regarding this insurance settlement.

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Dividend income. Dividend income represents the dividends we received from our
former investment in RMR Inc.
Unrealized gains (losses) on equity securities, net. Unrealized gains and losses
on equity securities, net represents the adjustment required to adjust the
carrying value of our former investment in RMR Inc., which we sold in July 2019,
and our investment in TA common shares to their fair values as of June 30, 2020
and June 30, 2019.
Interest income. The decrease in interest income is due to lower average cash
balances and lower interest rates during the 2020 period.
Interest expense. The increase in interest expense is due to higher average
outstanding borrowings and a higher weighted average interest rate in the 2020
period.
Loss on early extinguishment of debt. Loss on early extinguishment of debt
represents costs incurred in the 2020 period for our repurchase of $350,000
principal amount of our $400,000 of 4.25% senior notes due 2021.
Income tax benefit (expense). We recorded a $15,650 deferred tax liability as a
result of the book value to tax basis difference related to the accounting of an
insurance settlement during the three months ended June 30, 2020. See Note 5 to
our condensed consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q for further information regarding this insurance
settlement.
Equity in earnings (losses) of an investee. Equity in earnings (losses) of an
investee represents our proportionate share of the earnings (losses) of Sonesta
and AIC.
Net income (loss). Our net income (loss) and net income (loss) per common share
(basic and diluted) each decreased in the 2020 period compared to the 2019
period primarily due to the revenue and expense changes discussed above.

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Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
                                                     For the Six Months Ended June 30,
                                                                         Increase     % Increase
                                              2020          2019        (Decrease)    (Decrease)
Revenues:
Hotel operating revenues                   $ 500,859     $ 996,078     $ (495,219 )      (49.7 )%
Rental income - hotels                         2,372        10,148         (7,776 )      (76.6 )%
Rental income - net lease portfolio          195,284       126,742         68,542         54.1  %
Total rental income                          197,656       136,890         60,766         44.4  %
FF&E reserve income                              201         2,502         (2,301 )      (92.0 )%

Expenses:
Hotel operating expenses                     318,105       698,116       (380,011 )      (54.4 )%
Other operating expenses                       7,324         2,712          4,612        170.1  %
Depreciation and amortization - hotels       135,438       133,365          2,073          1.6  %
Depreciation and amortization - net
lease portfolio                              119,915        65,196         54,719         83.9  %
Total depreciation and amortization          255,353       198,561         56,792         28.6  %
General and administrative                    25,326        24,442            884          3.6  %
Loss on asset impairment                      45,254             -         45,254          n/m

Gain (loss) on sale of real estate            (9,764 )     159,535       (169,299 )     (106.1 )%
Gain on insurance settlement                  62,386             -         62,386          n/m
Dividend income                                    -         1,752         (1,752 )     (100.0 )%
Unrealized gains (losses) on equity
securities, net                               (1,197 )     (39,811 )       38,614        (97.0 )%
Interest income                                  277         1,086           (809 )      (74.5 )%
Interest expense                            (143,147 )     (99,367 )      (43,780 )       44.1  %
Loss on early extinguishment of debt          (6,970 )           -         (6,970 )        n/m
Income before income taxes and equity
earnings of an investee                      (51,061 )     234,834       (285,895 )     (121.7 )%
Income tax expense                           (17,002 )        (799 )      (16,203 )    2,027.9  %
Equity in earnings (losses) of an
investee                                      (2,936 )         534         (3,470 )     (649.8 )%
Net income (loss)                          $ (70,999 )   $ 234,569     $ (305,568 )     (130.3 )%

Weighted average shares outstanding
(basic)                                      164,376       164,281             95          0.1  %
Weighted average shares outstanding
(diluted)                                    164,376       164,324          

52 n/m

Net income (loss) per common share
(basic and diluted)                        $   (0.43 )   $    1.43     $    

(1.86 ) (130.1 )%

References to changes in the income and expense categories below relate to the
comparison of consolidated results for the six months ended June 30, 2020,
compared to the six months ended June 30, 2019.
Hotel operating revenues. The decrease in hotel operating revenues is a result
of decreased revenues at certain of our managed hotels primarily as a result of
lower occupancies resulting from the COVID-19 pandemic ($508,318), partially
offset by the conversion of one hotel from a leased to a managed property
($13,099). Additional operating statistics of our hotels are included in the
table on page 47.
Rental income - hotels. The decrease in rental income - hotels is primarily a
result of the conversion of one hotel from a leased to managed property during
the 2019 period ($5,879) and amending the lease terms for 48 vacation units we
leased at one hotel during 2020 ($1,897). Rental income - hotels for the 2020
and 2019 periods includes $1,897 and $161, respectively, of adjustments to
record rent on a straight-line basis.

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Rental income - net lease portfolio. The increase in rental income - net lease
portfolio is primarily a result of rents from properties we acquired pursuant to
the SMTA Transaction ($66,889). We reduced rental income by $772 and $4,483 for
the 2020 and 2019 periods, respectively, to record scheduled rent changes under
certain leases, the deferred rent obligations payable to us under our TA leases
and the estimated future payments to us under our TA leases for the cost of
removing underground storage tanks on a straight-line basis.
FF&E reserve income. The decrease in FF&E reserve income is the result of
decreased sales and the suspension of FF&E reserve contributions for our one
leased hotel in the 2020 period and the conversion of one hotel from a leased
hotel to a managed property in the 2020 period.
Hotel operating expenses. The decrease in hotel operating expenses is a result
of an increase in the amount of guaranty and security deposit utilization under
certain of our hotel management agreements ($187,413), a decrease at certain
managed hotels as a result of lower occupancies primarily driven by the COVID-19
pandemic and certain hotels undergoing renovations during all of part of the six
months ended June 30, 2020 ($145,402), a decrease in wage and benefit costs,
sales and marketing expenses and other operating costs at certain of our managed
hotels ($52,762), our hotel acquisitions since January 1, 2019 ($3,592), a
decrease in the amount of guaranty and security deposit replenishments under
certain of our hotel management agreements ($3,422) and a decrease in real
estate taxes at certain of our hotels ($519), partially offset by the conversion
of one hotel from a leased to managed property during the 2020 period ($13,099).
Certain guarantees and security deposits which have been applied to past payment
deficits may be replenished from a share of subsequent cash flows from the
applicable hotel operations pursuant to the terms of the respective operating
agreements. When our guarantees and our security deposits are replenished by
cash flows from hotel operations, we reflect such replenishments in our
condensed consolidated statements of comprehensive income as an increase to
hotel operating expenses. As a result, hotel operating expenses were increased
by $3,422 for the six months ended June 30, 2019. There were no such
replenishments for the six months ended June 30, 2020. When our guarantees and
security deposits are utilized to cover shortfalls of hotel cash flows from the
minimum payments due to us, we reflect such utilizations in our condensed
consolidated statements of comprehensive income as a decrease to hotel operating
expenses. Hotel operating expenses were decreased by $191,660 and $16,679 during
the six months ended June 30, 2020 and 2019, respectively, as a result of such
utilization.
Other operating expenses. The increase in other operating expenses is a result
of operating expenses we pay at certain properties we acquired as part of the
SMTA Transaction in September 2019.
Depreciation and amortization - hotels. The increase in depreciation and
amortization - hotels is a result of the depreciation and amortization of
improvements acquired with funds from our FF&E reserves or directly funded by us
since January 1, 2019 ($11,172) and our hotel acquisitions since January 1, 2019
($2,202), partially offset by certain of our depreciable assets becoming fully
depreciated since January 1, 2019 ($11,301).
Depreciation and amortization - net lease portfolio. The increase in
depreciation and amortization - net lease portfolio is a result of the
depreciation and amortization of properties we acquired as part of the SMTA
Transaction ($53,761) and the depreciation and amortization of net lease
improvements we purchased since January 1, 2019 ($8,278), partially offset by
certain of our depreciable assets becoming fully depreciated since January 1,
2019 ($7,320).
General and administrative. The increase in general and administrative costs is
primarily due to an increase in professional service expenses.
Loss on asset impairment. We recorded a $45,254 loss on asset impairment during
the six months ended June 30, 2020 to reduce the carrying value of 17 hotels and
six net lease properties to their estimated fair value.
Gain (loss) on sale of real estate. We recorded a $9,764 net loss on sale of
real estate in the 2020 period in connection with the sales of ten net lease
properties and a $159,535 gain on sale of real estate during the six months
ended June 30, 2019 in connection with our sales of 20 travel centers.
Gain on insurance settlement. We recorded a $62,386 gain on insurance settlement
during the six months ended June 30, 2020 as a result of insurance proceeds
received for our 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.
Dividend income. Dividend income represents the dividends we received from our
former investment in RMR Inc.

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Unrealized gains (losses) on equity securities, net. Unrealized gains (losses)
on equity securities, net represent the adjustment required to adjust the
carrying value of our former investment in RMR Inc., which we sold in July 2019,
and our investment in TA common shares, to their fair values as of June 30, 2020
and June 30, 2019.
Interest income. The decrease in interest income is due to lower average cash
balances and lower interest rates during the 2020 period.
Interest expense. The increase in interest expense is due to higher average
outstanding borrowings and weighted average interest rates in the 2020 period.
Loss on early extinguishment of debt. Loss on early extinguishment of debt
represents costs incurred in the 2020 period for our purchase of $350,000
principal amount of our $400,000 of 4.25% senior notes due 2021.
Income tax expense. We recorded a $15,650 deferred tax liability as a result of
the book value to tax basis difference related to the accounting of an insurance
settlement in the three months ended June 30, 2020. See Note 5 to our condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for further information regarding this insurance settlement.
Equity in earnings (losses) of an investee. Equity in earnings (losses) of an
investee represents our proportionate share of the earnings (losses) of Sonesta
and AIC.
Net income (loss). Our net income (loss) and net income (loss) per common share
(basic and diluted) each decreased in the 2020 period compared to the 2019
period primarily due to the revenue and expense changes discussed above.

Liquidity and Capital Resources (dollar amounts in thousands, except share
amounts)
Our Managers and Tenants
As of June 30, 2020, 329 of our hotels (including one leased hotel) were
included in six combination portfolio agreements; and all 329 hotels were
managed by or leased to hotel operating companies. Our 809 net lease properties
were leased to 180 tenants as of June 30, 2020. The costs of operating and
maintaining our properties are generally paid by the hotel operators as agents
for us or by our tenants for their own account. Our hotel operators 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 minimum returns and rents, from their separate resources.
Our hotel operators include Marriott, IHG, Sonesta, Wyndham, Hyatt and Radisson.
TA is our largest net lease tenant. No other net lease tenant represents more
than 1% of our total annualized minimum returns or rents.
The COVID-19 pandemic has had a material and adverse effect on the lodging and
service industries and our hotel managers' and tenant's businesses. Certain of
our tenants' businesses have been materially and adversely impacted by the
COVID-19 pandemic, which may reduce their ability or willingness to pay us our
minimum returns and rents, increase the likelihood they will default in paying
us rent and likely reduce the value of those properties.
IHG operates 103 of our hotels under agreements requiring that, as of June 30,
2020, we are to be paid annual minimum returns and rents of $216,551. In July
2020, we applied the remaining $8,992 of security deposit securing the
obligations of IHG under its agreement with us. We did not receive any payments
from IHG to cure shortfalls for the balance of the July minimum returns and
rents of $8,395 due to us after applying the remaining security deposit or the
August 2020 minimum returns and rents of $18,045 due to us. In July 2020, we
sent IHG a notice of default and termination, and in August 2020, we sent IHG an
additional notice of default. We are in discussions with IHG to see if there may
be a mutually beneficial resolution. Absent a cure of these defaults by IHG, or
if no agreement is reached, we currently plan to transition management and
branding of these 103 hotels to Sonesta. If any other of our hotel operators or
guarantors default in their payment obligations to us, our cash flows will
decline further.

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We continue to carefully monitor the developments of the COVID-19 pandemic and
its impact on our operators and tenants and our other stakeholders. As a result
of the depressed activity at our hotels and expected losses, several of our
hotel operators requested working capital advances from us to pay operating
expenses. During the quarter ended June 30, 2020, we advanced an aggregate of
$80,474 of working capital to certain of our hotel operators to cover projected
operating losses. We advanced $37,000 to IHG, $30,000 to Marriott, $7,351 to
Sonesta, $2,423 to Wyndham and $3,700 to Hyatt. Under certain of our hotel
agreements, working capital advances are reimbursable to us from a share of
future cash flows from the applicable hotel operations in excess of the minimum
returns due to us and certain fees to the manager pursuant to the terms of the
respective agreements. The amounts we have advanced to date may be insufficient
to cover future losses and we may receive additional requests for working
capital in the future.
TA, our largest tenant, is current on all its rent obligations to us as of
August 6, 2020. During the three months ended June 30, 2020, we collected 58.7%
of rents from our other net lease tenants, including 45.6% in April 2020, 57.6%
in May 2020 and 74.6% in June 2020. In July 2020, we collected 80.0% of rents
due to us from our other net lease tenants. We have entered into rent deferral
agreements with 80 net lease retail tenants with leases requiring an aggregate
of $59,288 of annual minimum rents. Generally these rent deferrals are for one
to four months of rent and will be payable by the tenants over a 12 to 24 month
period beginning in September 2020. As of August 6, 2020, we have deferred an
aggregate of $11,312 of rent. We may receive additional similar requests in the
future, and we may determine to grant additional relief in the future, which may
vary from the type of relief we have granted to date, and could include more
substantial relief, if we determine it prudent or appropriate to do so. In
addition, if any of our tenants are unable to continue as going concerns as a
result of the current economic conditions or otherwise, we will experience a
reduction in rents received and we may be unable to find suitable replacement
tenants for an extended period or at all and the terms of our leases with those
replacement tenants may not be as favorable to us as the terms of our agreements
with our existing tenants. Further, we do not know whether any of our tenants
have qualified for, or will receive assistance from, the Coronavirus Aid, Relief
and Economic Security Act or other government programs and, if they do, whether
that assistance will be sufficient to enable them to pay rent to us. As a result
of these uncertainties surrounding the COVID-19 pandemic and the duration and
extent of the resulting economic downturn, we are unable to determine what the
ultimate impact will be on our tenants and their ability and willingness to pay
us rent and any additional impact this pandemic will have on our future cash
flows.
We define coverage for each of our hotel operating agreements as total hotel
property level revenues minus all hotel property level expenses and FF&E reserve
escrows that are not subordinated to the hotel minimum returns or rents due to
us divided by the hotel minimum returns or rents due to us. More detail
regarding coverage, guarantees and other features of our hotel operating
agreements is presented in the tables and related notes on pages 45 through 47.
For the twelve months ended June 30, 2020, all six of our hotel operating
agreements, representing 62% of our total annual minimum returns and rents,
generated coverage of less than 1.0x (with a range from 0.04x to 0.52x).
We define net lease coverage as earnings before interest, taxes, depreciation,
amortization and rent, or EBITDAR, divided by the annual minimum rent due to us
weighted by the minimum rent of the property to total minimum rents of the net
lease portfolio. EBITDAR amounts used to determine rent coverage are generally
for the latest twelve month period reported based on the most recent operating
information, if any, furnished by the tenant. Operating statements furnished by
the tenant often are unaudited and, in certain cases, may not have been prepared
in accordance with GAAP and are not independently verified by us. Tenants that
do not report operating information are excluded from the coverage calculations.
Coverage amounts include data for certain properties for periods prior to when
we acquired them. In instances where we do not have financial information for
the most recent quarter from our tenants, we have calculated an implied EBITDAR
for the second quarter using industry benchmark data to more accurately reflect
the impact of COVID-19 on our tenants' operations. We believe using only
financial information from the earlier periods could be misleading as it would
not reflect the negative impact those tenants experienced as a result of the
COVID-19 pandemic. As a result, we believe using this industry benchmark data
provides a more accurate estimated representation of recent operating results
and coverage for those tenants. As of June 30, 2020, our net lease properties
generated coverage of 2.16x.
Certain of our management arrangements or leases are subject to full or limited
guarantees or are secured by a security deposit which we control. These
guarantees may provide us with continued payments if the property level cash
flows fail to equal or exceed guaranteed amounts due to us. Some of our managers
and tenants, or their affiliates, may also supplement cash flows from our
properties in order to make payments to us and preserve their rights to continue
operating our properties even if they are not required to do so by guarantees or
security deposits. Guarantee payments, security deposit applications or
supplemental payments to us, if any, made under any of our management agreements
or leases do not subject us to repayment obligations, but, under some of our
agreements, the manager or tenant may recover these guarantee or supplemental
payments and the security deposits may be replenished from subsequent cash flows
from our properties after our future minimum returns and rents are paid.

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When cash flows from our hotels under certain of our agreements are less than
the minimum returns or rents contractually due to us, we have utilized the
applicable security features in our agreements to cover some of these
shortfalls. However, several of the guarantees and all the security deposits we
hold are for limited amounts, are for limited durations and may be exhausted or
expire. Accordingly, the effectiveness of our various security features to
provide uninterrupted payments to us is not assured. We have exhausted the
security deposits held under the IHG agreement and IHG has defaulted on its
payment obligations. We have also exhausted both the security deposit and the
limited guaranty under the Marriott agreement. Under the Marriott agreement,
once the security deposit and guaranty have been depleted, Marriott is required
to fund shortfalls up to 80% of the minimum returns due to us to avoid
termination. Year to date through June 30, 2020, we have received payments or
utilized the available security deposit for an aggregate of 80% of the minimum
returns due to us from Marriott. Based on our current estimates, we project that
we may exhaust the remainder of the guarantee from Hyatt as early as the fourth
quarter of 2020.
On February 27, 2020, we entered into a transaction agreement with Sonesta
pursuant to which we and Sonesta restructured our existing business
arrangements, as follows:
•      we amended and restated our then existing Sonesta agreement, and our

existing pooling agreement with Sonesta, which combines our management

agreements with Sonesta for purposes of calculating gross revenues,

payment of hotel operating expenses, payment of fees and distributions and

minimum returns due to us, as further described below;

• we and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay

hotels currently managed by Sonesta, which as of June 30, 2020, had an

aggregate carrying value of $461,263 and which currently require aggregate

minimum returns of $48,239. As the hotels are sold, rebranded or

repurposed, the management agreement for the applicable hotel(s) will

terminate without our being required to pay Sonesta a termination fee and

       the annual minimum returns due to us under our Sonesta agreement will
       decrease by the amount allocated to the applicable hotel(s);

• Sonesta continues to manage 14 of our full-service hotels it then managed

and the aggregate annual minimum returns due for these hotels was reduced

from $99,013 to $69,013;

• Sonesta issued to us a number of its shares of common stock representing

approximately (but not more than) 34% of its outstanding shares of common

       stock (post-issuance) and we entered into a stockholders agreement with
       Sonesta, Adam Portnoy and the other stockholder of Sonesta and a
       registration rights agreement with Sonesta;

• we and Sonesta modified our then existing Sonesta agreement and pooling

agreement so that up to 5% of the gross revenues of each of our 14

full-service hotels managed by Sonesta will be escrowed for future capital

       expenditures as FF&E reserves, subject to available cash flow after
       payment of the annual minimum returns due to us and working capital
       advances, if any, under our Sonesta agreement;

• we and Sonesta modified our then existing Sonesta agreement and pooling

       agreement so that (1) our termination rights under those agreements for
       our 14 full-service hotels managed by Sonesta are generally limited to
       performance and for "cause", casualty and condemnation events, (2) a
       portfolio wide performance test now applies for determining whether the

management agreement for any of our full service hotels managed by Sonesta

may be terminated for performance reasons, and (3) the provisions included

in our historical pooling agreement that allowed either us or Sonesta to

       require the marketing for sale of non-economic hotels were removed; and

• we and Sonesta extended the initial expiration date of the then existing

management agreements for our full-service hotels located in Chicago, IL

and Irvine, CA that are managed by Sonesta to expire in January 2037 to

align with the initial expiration date for our other full-service hotels

managed by Sonesta.

Except as described above, the economic terms of our amended and restated
Sonesta agreement and amended and restated pooling agreement are consistent with
the historical Sonesta agreement and pooling agreement. Additional details of
this agreement are set forth in Note 6 to our condensed consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We previously leased 48 vacation units to Destinations at our full-service hotel
located in Chicago, IL, which Sonesta began managing in November 2019 and which
had previously been managed by Wyndham. Effective March 1, 2020, Sonesta
commenced managing those units and those units were added to our Sonesta
agreement for that Chicago hotel.

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Our Wyndham agreement expires on September 30, 2020 and we expect to transition
management and branding of these hotels to Sonesta upon expiration of the
agreement unless sooner terminated with respect to any hotels that are sold.
Wyndham is required to pay us all cash flows of the hotels after payment of
hotel operating costs. Wyndham is not entitled to any base management fees for
the remainder of the agreement term.
Our Operating Liquidity and Capital Resources
Our principal sources of funds to meet operating and capital expenses, debt
service obligations and distributions to our shareholders are minimum returns
from our managed hotels, minimum rents from our leased hotel and net lease
portfolio and borrowings under our revolving credit facility. We receive minimum
returns and rents from our managers and tenants monthly. We may receive
additional returns, percentage rents and our share of the operating profits of
our managed hotels after payment of management fees and other deductions, if
any, either monthly or quarterly, and these amounts are usually subject to
annual reconciliations. We believe that these sources of funds will be
sufficient to meet our operating and capital expenses, pay debt service
obligations and make distributions to our shareholders for the next twelve
months and for the foreseeable future thereafter. Due to the economic
uncertainty caused by the COVID-19 pandemic, we reduced our quarterly
distribution to our shareholders beginning with the quarter ended March 31, 2020
to $0.01 per share and we expect our quarterly distribution to continue at that
rate for the foreseeable future, subject to REIT tax requirements. Further, our
managers and tenants may become further or increasingly unable or unwilling to
pay minimum returns and rents to us when due as a result of current economic
conditions and, as a result, our cash flows and net income could decline.
The following is a summary of our sources and uses of cash flows for the periods
presented (dollars in thousands):
                                                             Six Months 

Ended June 30,

                                                             2020           

2019

Cash and cash equivalents and restricted cash at the beginning of the period

$       81,259       $       76,003
Net cash provided by (used in):
Operating activities                                           48,797              239,898
Investing activities                                          (74,760 )                531
Financing activities                                           (5,438 )    

(262,952 ) Cash and cash equivalents and restricted cash at the end of the period

$       49,858

$ 53,480

The decrease in cash flows provided by operating activities for the six months
ended June 30, 2020 as compared to the prior year period is primarily due to an
increase in security deposit utilization in the 2020 period, lower returns
earned from our hotel portfolio and higher interest expense in the 2020 period.
The change from cash flows provided by investing activities in the 2019 period
to cash used in investing activities in the 2020 period is primarily due to the
proceeds received from our sale of 20 travel centers in the 2019 period,
partially offset by a decrease in real estate acquisition activity in the 2020
period. The decrease in cash used in financing activities for the six months
ended June 30, 2020 as compared to the prior year period is primarily due to the
issuance of $800,000 aggregate principal amount of senior unsecured notes,
offset by greater net payments under our revolving credit facility, our
repurchase of $350,000 aggregate principal amount of senior unsecured notes and
lower common share distributions compared to the 2019 period.
We maintain our qualification for taxation as a REIT under the IRC by meeting
certain requirements. As a REIT, we do not expect to pay federal income taxes on
the majority of our income; however, the income realized by our TRSs in excess
of the rent they pay to us is subject to U.S. federal income tax at corporate
income tax rates. In addition, the income we receive from our hotels in Canada
and Puerto Rico is subject to taxes in those jurisdictions and we are subject to
taxes in certain states where we have properties despite our qualification for
taxation as a REIT.
Our Investment and Financing Liquidity and Capital Resources
Various percentages of total sales at some of our hotels are escrowed as FF&E
reserves to fund future capital improvements. During the six months ended
June 30, 2020, our hotel managers and tenants deposited $33,806 to these
accounts and spent $95,744 from the FF&E reserve escrow accounts to renovate and
refurbish our hotels. As of June 30, 2020, there was $29,652 on deposit in these
escrow accounts, which was held directly by us and is reflected in our condensed
consolidated balance sheets as restricted cash. As a result of the COVID-19
pandemic and the adverse impact on the lodging industry and our properties, we
and certain of our hotel operators have agreed to temporarily suspend the
required contribution to our FF&E reserves under certain of our agreements
through as late as December 31, 2020 as further defined below. For more
information, see Note 6 to our condensed consolidated financial statements in
Part 1, Item 1 of this Quarterly Report on Form 10-Q. As a result, less cash
will be available to us to fund future capital improvements and we may be
required to provide additional fundings in excess of amounts that otherwise
would have been available in escrowed FF&E reserves.

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Our hotel operating agreements generally provide that, if necessary, we may
provide our managers and tenants with funding for capital improvements to our
hotels in excess of amounts otherwise available in escrowed FF&E reserves or
when no FF&E reserves are available. To the extent we make such additional
fundings, our annual minimum returns or rents generally increase by a percentage
of the amount we fund. During the six months ended June 30, 2020, we funded
$74,100 for capital improvements in excess of FF&E reserve fundings available
from hotel operations to our hotels as follows:
•      During the six months ended June 30, 2020, we funded $28,900 for capital

improvements to certain hotels under the Marriott agreement using cash on

hand and borrowings under our revolving credit facility. Under the

Marriott agreement, we have previously agreed to fund capital improvements

of approximately $400,000 at certain hotels over a four-year period. We

and Marriott have agreed to defer certain capital improvement projects

previously scheduled for 2020 based on current market conditions. Also, we

and Marriott agreed to suspend contributions to the FF&E reserve under the

Marriott agreement through the end of 2020 effective March 1, 2020 as a

result of current market conditions. We currently expect to fund $20,000

for capital improvements under this agreement during the last six months

of 2020 using cash on hand or borrowings under our revolving credit

facility. As we fund these improvements, the contractual minimum returns

       payable to us increase.


•      We funded $3,900 for capital improvements to hotels under the IHG
       agreement during the six months ended June 30, 2020. We currently do not
       expect to fund any capital improvements during the last six months of

2020. Effective March 1, 2020, we and IHG agreed to suspend contributions

to the FF&E reserve under the IHG agreement for the remainder of 2020 as a

result of current market conditions.

• Under our Sonesta agreement, FF&E deposits are required only if there are

excess cash flows after our payment of minimum returns and reimbursement

of owner or manager advances, if any. During the six months ended June 30,

2020, we funded $40,088 for capital improvements to certain hotels

included in our Sonesta agreement using cash on hand and borrowings under

our revolving credit facility. We currently expect to fund $11,000 of

capital improvements during the last six months of 2020 under this

agreement using cash on hand or borrowings under our revolving credit

facility. As we fund these improvements, the contractual minimum returns

payable to us increase.

• We did not fund any capital improvements under our Hyatt agreement during

the six months ended June 30, 2020. We currently do not expect to fund any

       capital improvements under this agreement during the last six months of
       2020.

• We did not fund any capital improvements under our Radisson agreement

during the six months ended June 30, 2020. We currently do not expect to

fund any capital improvements under this agreement during the last six

months of 2020. Also, effective April 1, 2020, we and Radisson agreed to

suspend contributions to the FF&E reserve under our Radisson agreement

through the remainder of 2020 as a result of market conditions.

• No FF&E escrow deposits are required under our Wyndham agreement. We are

required to reimburse Wyndham for capital improvements to hotels in our

Wyndham agreement. During the six months ended June 30, 2020, we

reimbursed $1,212 of capital improvements to certain hotels included in

our Wyndham agreement using cash on hand. We currently expect to fund $800

       of capital improvements under this agreement for the last six months of
       2020 using cash on hand and borrowings under our revolving credit
       facility.


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 funded
$4,400 of capital improvements to properties under these lease provisions during
the six months ended June 30, 2020. Tenants are not obligated to request and we
are not obligated to purchase any such improvements. As of June 30, 2020, we had
$1,199 of unspent leasing-related obligations related to certain net lease
tenants.
During the six months ended June 30, 2020, we acquired three net lease
properties with approximately 6,696 square feet in two states for an aggregate
purchase price of $7,071, including acquisition related costs of $71 using cash
on hand.
During the six months ended June 30, 2020, we sold ten net lease properties with
approximately 1,101,996 square feet in eight states for an aggregate sales price
of $63,960, excluding closing costs. We used the net proceeds from these sales
to repay amounts outstanding under our revolving credit facility.
In June 2020, we issued $800,000 aggregate principal amount of our 7.50%
unsecured senior notes due 2025. The aggregate net proceeds from this offering
were $788,002, after underwriting discounts and other offering expenses and were
used to repay amounts outstanding under our revolving credit facility.

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In June 2020, we repurchased $350,000 principal amount of our $400,000 of 4.25%
senior notes due 2021 for $355,971, excluding accrued interest, pursuant to a
cash tender offer using borrowings under our revolving credit facility.
In July 2020, we participated in an underwritten public equity offering by TA
pursuant to which we purchased 500,797 shares of TA common stock at the public
offering price of $14 per share for $7,011 using cash on hand.
We have entered into an agreement to sell eight Marriott branded hotels with 834
rooms in four states with an aggregate net carrying value of $34,956 for an
aggregate purchase price of $45,250. We have entered an agreement to sell one
Wyndham branded hotel with 344 rooms with a net carrying value of $3,365 for a
sales price of $3,500. We expect these sales to be completed in the fourth
quarter of 2020. We expect to use the net sales proceeds from any hotels sold to
repay outstanding indebtedness. The amount of minimum returns due from Marriott
will be reduced by the amount allocated to the hotels, which was $7,935 as of
June 30, 2020. The sales of these hotels are subject to various contingencies;
accordingly, we cannot provide any assurance that it will sell any of these
eight hotels.
In July 2020, we sold one net lease property with 2,935 square feet with a
carrying value of $657 requiring an annual minimum rent of $49 for a sale price
of $700.We have also entered into agreements to sell seven net lease properties
with approximately 68,343 square feet in six states with an aggregate carrying
value of $6,282 with leases requiring an aggregate of $332 annual minimum rents
as of June 30, 2020 for an aggregate sales price of $6,875. The sales of these
hotel and retail properties are subject to conditions, may not be completed, may
be delayed or terms may change. We currently expect the sales of these net lease
properties to be completed in the third quarter of 2020. We expect to use the
net sales proceeds from any net lease properties sold to repay outstanding
indebtedness.
On February 20, 2020, we paid a regular quarterly distribution to our common
shareholders of record on January 27, 2020 of $0.54 per share, or $88,863. On
May 21, 2020, we paid a regular quarterly distribution of $0.01 per share, or
approximately $1,646, to shareholders of record on April 21, 2020. On July 16,
2020, we declared a regular quarterly distribution to common shareholders of
record on July 27, 2020 of $0.01 per share, or approximately $1,646. We expect
to pay this amount on or about August 20, 2020.
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 $1,000,000
revolving credit facility and $400,000 term loan which are governed by a credit
agreement with a syndicate of institutional lenders. The maturity date of our
revolving credit facility is July 15, 2022, and, subject to the payment of an
extension fee and meeting certain other conditions, we have an option to extend
the maturity date of this facility for two additional six-month periods. We are
required to pay interest at the rate of LIBOR plus a premium, which was 205
basis points per annum, subject to a LIBOR floor of 0.50%, at June 30, 2020, 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 June 30, 2020. Both the
interest rate premium and the facility fee are subject to adjustment based upon
changes to our credit ratings. As of June 30, 2020, the annual interest rate
payable on borrowings under our revolving credit facility was 2.55%. As of
June 30, 2020, we had $33,127 outstanding and $966,873 available to borrow under
our revolving credit facility. As of August 6, 2020, we had $32,089 outstanding
and $967,911 available to borrow under our revolving credit facility, subject to
the minimum liquidity requirements under our credit agreement described below.
Our term loan, which matures on July 15, 2023, is prepayable without penalty at
any time. We are required to pay interest on the amount outstanding under our
term loan at the rate of LIBOR plus a premium, which was 225 basis points per
annum, subject to a LIBOR floor of 0.50%, at June 30, 2020. The interest rate
premium is subject to adjustment based upon changes to our credit ratings. As of
June 30, 2020, the annual interest rate for the amount outstanding under our
term loan was 2.75%.
Our credit agreement also includes a feature under which the maximum borrowing
availability may be increased to up to $2,300,000 on a combined basis in certain
circumstances.
On May 8, 2020, we amended the credit agreement governing
our $1,000,000 unsecured revolving credit facility and $400,000 unsecured term
loan. The amendment provides for a waiver of certain of the financial covenants
under our credit agreement through the Waiver Period during which, subject to
certain conditions, we will continue to have access to undrawn amounts under the
credit facility.
During the Waiver Period, and continuing thereafter until such time as we have
demonstrated compliance with certain of our financial covenants as of June 30,
2021:
•      we are required to maintain unrestricted liquidity (unrestricted cash or
       undrawn availability under our $1,000,000 revolving credit facility) of
       not less than $125,000;



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• our interest premium over LIBOR under our revolving credit facility and

term loan was increased by 50 basis points;

• our ability to pay distributions on our common shares has been limited to

amounts required to maintain our qualification for taxation as a REIT and

to avoid the payment of certain income and excise taxes, and to pay a cash

dividend of $.01 per common share per quarter;

• we are subject to certain additional covenants, including additional

       restrictions on our ability to incur indebtedness (with exceptions for
       borrowings under our revolving credit facility and certain other
       categories of secured and unsecured indebtedness), and to acquire real
       property or make other investments (with exceptions for, among other

things, certain categories of capital expenditures and costs, and certain

       share purchases); and


•      we are generally required to apply the net cash proceeds from the

disposition of assets, capital markets transactions, debt refinancings or

COVID-19 pandemic related government stimulus programs to the repayment of

outstanding loans under the credit agreement.

Additionally, the feature pursuant to which our maximum aggregate borrowings
under the credit agreement may be increased up to $2,300,000 may not be utilized
through March 31, 2021. We have pledged our equity in certain of our property
owning subsidiaries to secure our obligations under the credit agreement. These
subsidiaries owned properties with approximately $876,715 of undepreciated book
value as of June 30, 2020. We will be required to pledge the equity of
additional property owning subsidiaries in the event that the Collateral Value
Percentage, as defined, exceeds 50%. These pledges are subject to release in
full, (i) subject to the satisfaction of certain conditions, including, among
other things, our having complied with the financial covenants under the credit
agreement for two fiscal quarters following the end of the Waiver Period or (ii)
in connection with Qualified Note Issuance provided that, among other
conditions, the outstanding amount of the revolving facility does not exceed
$750,000 and the term loan has been paid in full. If, following a release of
pledges in connection with Qualified Note Issuance, a request for a borrowing
under the revolving facility would result in more than $750,000 outstanding
under the revolving facility, we are required to deliver new equity pledges such
that the Collateral Value Percentage is no more than 50%. We have the right to
substitute collateral and otherwise obtain the release of pledged subsidiaries
in certain circumstances. While the equity pledges remain in effect, we will
remain subject to the restrictions our ability to make investments or pay
distributions on our common shares that are described above.
Our term debt maturities (other than our revolving credit facility and term
loan) as of June 30, 2020 were as follows:
Year     Maturity
2020   $         -
2021        50,000
2022       500,000
2023       500,000
2024     1,175,000
2025     1,150,000
2026       800,000
2027       400,000
2028       400,000
2029       425,000
2030       400,000
       $ 5,800,000


None of our unsecured debt obligations require principal or sinking fund
payments prior to their maturity dates.
We currently expect to use cash on hand, the cash flows from our operations,
borrowings under our revolving credit facility, net proceeds from any asset
sales and net proceeds of offerings of equity or debt securities to fund our
future debt maturities, operations, capital expenditures, distributions to our
shareholders and other general business purposes.

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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 securities. We may also seek to participate in joint
ventures or other arrangements that may provide us additional sources of
financing. Although we have not historically done so, we may also assume
mortgage debt on properties we may acquire or obtain mortgage financing on our
existing properties.
While we believe we will 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. Also, as noted above, we are
limited in our ability to incur additional debt during the Waiver Period
pursuant to our credit agreement.
Our ability to complete, and the costs associated with, future debt transactions
depends primarily upon credit market conditions and our then creditworthiness.
We have no control over market conditions. Our credit ratings depend upon
evaluations by credit rating agencies of our business practices and plans,
including our ability to maintain our earnings, to stagger our debt maturities
and to balance our use of debt and equity capital so that our financial
performance and leverage ratios afford us flexibility to withstand any
reasonably anticipated adverse changes. Similarly, our ability to raise equity
capital in the future will depend primarily upon equity capital market
conditions and our ability to conduct our business to maintain and grow our
operating cash flows. We intend to conduct our business activities in a manner
which will afford us reasonable access to capital for investment and financing
activities. However, as discussed elsewhere in this Quarterly Report on Form
10-Q, the continued duration and severity of the current economic downturn
resulting from the COVID-19 pandemic 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.
Off Balance Sheet Arrangements
As of June 30, 2020, we had no off balance sheet arrangements that have had or
that we expect would be reasonably likely to have a material effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Debt Covenants
Our debt obligations at June 30, 2020 consisted of outstanding borrowings under
our $1,000,000 revolving credit facility, our $400,000 term loan and $5,800,000
of publicly issued term debt. Our publicly issued term debt is governed by our
indentures and related supplements. These indentures and related supplements and
our credit agreement contain covenants that generally restrict our ability to
incur debts, including debts secured by mortgages on our properties, in excess
of calculated amounts, and require us to maintain various financial ratios and
our credit agreement restricts our ability to make distributions under certain
circumstances. Our credit agreement and our unsecured senior notes indentures
and their supplements provide for acceleration of payment of all amounts
outstanding upon the occurrence and continuation of certain events of default,
such as, in the case of our credit agreement, a change of control of us, which
includes RMR LLC ceasing to act as our business manager. As of June 30, 2020, we
believe we were in compliance with all of the covenants under our indentures and
their supplements and our credit agreement, subject to the waivers described
above. As noted above, in response to current market conditions we and our
lenders amended our credit agreement to provide limited waivers of certain
covenants.
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 and term loan would increase.
Our public debt indentures and their supplements contain cross default
provisions to any other debt of $20,000 or more ($50,000 or more in the case of
our indenture entered into in February 2016 and its supplements). Similarly, our
credit agreement has cross default provisions to other indebtedness that is
recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or
more.

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Supplemental Guarantor Information
In March 2020, the Securities and Exchange Commission, or SEC, approved Release
No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed
Securities and Affiliates Whose Securities Collateralize a Registrant's
Securities, or Release 33-10762. Release 33-10762 amends the disclosure
requirements  related to certain registered securities under SEC Regulation S-X,
Rules 3-10 and 3-16, permitting registrants to provide certain alternative
financial disclosures and non-financial disclosures in lieu of separate
consolidating financial statements for subsidiary issuers and guarantors of
registered debt securities if certain conditions are met. The amendments in
Release 33-10762 are generally effective for filings on or after January 4,
2021, with early application permitted. We adopted the new disclosure
requirements permitted under Release 33-10762 effective for the quarter ended
March 31, 2020.
Our $800,000 7.50% unsecured senior notes due 2025 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.
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 $5,000,000 of senior unsecured notes do not have the benefit of any
guarantees.
A subsidiary guarantor's guarantee of the $800,000 notes and all other
obligations of such subsidiary guarantor under the indenture governing the notes
will automatically terminate and such subsidiary guarantor will automatically be
released from all of its obligations under such subsidiary guarantee and the
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 Standard & Poor's, or if
Moody's or Standard & Poor's ceases to rate the notes for reasons outside of our
control, the equivalent investment grade rating from any other rating agency and
(b) no default or event of default has occurred and is continuing under the
indenture. Our non-guarantor subsidiaries are separate and distinct legal
entities and will have no obligation, contingent or otherwise, to pay any
amounts due on these notes or the guarantees, or to make any funds available
therefor, whether by dividend, distribution, loan or other payments. The rights
of holders of these notes to benefit from any of the assets of our non-guarantor
subsidiaries are subject to the prior satisfaction of claims of those
subsidiaries' creditors and any preferred equity holders. As a result, these
notes and the related guarantees will be structurally subordinated to all
indebtedness, guarantees and other liabilities of our subsidiaries that do not
guarantee these notes, including guarantees of or pledges under other
indebtedness of ours, payment obligations under lease agreements, trade payables
and preferred equity.
The following table presents summarized financial information for us and the
subsidiary guarantors, on a combined basis after elimination of (i) intercompany
transactions and balances among us and the subsidiary guarantors and (ii) equity
in earnings from, and any investments in, any of our non-guarantor subsidiaries:
                                  As of June 30, 2020      As of December 31, 2019
Real estate properties, net(1)   $           7,064,672    $               7,334,472
Intercompany balances(2)                       537,020                      612,632
Other assets, net                              798,992                      674,705
Total assets                     $           8,400,684    $               8,621,809
Indebtedness, net                $           5,732,018    $               5,287,658
Other liabilities                              785,194                    1,226,777
Total liabilities                $           6,517,212    $               6,514,435


                     Six Months Ended
                      June 30, 2020       Year Ended December 31, 2019
Revenues            $        655,631     $                    2,296,465
Expenses                     791,778                          2,008,539
Net income (loss)           (136,147 )                          287,926

(1) Real estate properties, net as of June 30, 2020 and December 31, 2019,

includes $222,512 and $249,620, respectively, 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.

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Management Agreements, Leases and Operating Statistics (dollar amounts in
thousands)
As of June 30, 2020, we owned and managed a diverse portfolio of hotels and net
lease properties across the United States and in Puerto Rico and Canada with 149
brands across 23 industries.
Hotel Portfolio
As of June 30, 2020, 329 of our hotels (including one leased hotel) were
included in six portfolio agreements. As of June 30, 2020, our hotels were
managed by or leased to separate affiliates of IHG, Marriott, Sonesta, Hyatt,
Radisson and Wyndham under six agreements.
The tables and related notes below through page 47 summarize significant terms
of our hotel lease and management agreements as of June 30, 2020. These tables
also include statistics reported to us or derived from information reported to
us by our hotel managers and tenant. These statistics include coverage of our
minimum returns or minimum rents and occupancy, ADR and RevPAR for our hotel
properties. We consider these statistics and the management agreement or lease
security features also presented in the tables and related notes on the
following pages to be important measures of our managers' and tenant's success
in operating our hotel properties and their ability to continue to pay us.
However, this third party reported information is not a direct measure of our
financial performance and we have not independently verified the operating data.
                                     Number of                                                           Rent / Return Coverage (3)
                                      Rooms or                                                   Three Months Ended      Twelve Months Ended
Operating Agreement    Number of       Suites                             Annual Minimum              June 30,                 June 30,
Reference Name         Properties     (Hotels)      Investment (1)        Return/Rent (2)         2020         2019       2020         2019
IHG (4)(5)                   103       17,154     $      2,381,721     $           216,551         (0.11x)      1.09x       0.50x        0.97x
Marriott (4)(6)              122       17,085            1,869,817                 192,891         (0.32x)      1.29x       0.52x        1.10x
Sonesta (4)(7)                53        9,588            2,004,204                 119,779         (0.59x)      0.89x       0.04x        0.64x
Hyatt (8)                     22        2,724              301,942                  22,037         (0.36x)      1.20x       0.37x        0.95x
Radisson (4)(9)                9        1,939              289,139                  20,442         (0.80x)      1.13x       0.36x        0.93x
Wyndham (4)(10)               20        2,914              214,917                  18,914         (0.61x)      0.74x       0.04x        0.50x
Total / Average
Hotels                       329       51,404     $      7,061,740     $           590,614         (0.33x)      1.11x       0.38x        0.91x


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

excludes capital improvements made from FF&E reserves funded from hotel

       operations which do not result in increases in hotel minimum returns or
       rents.

(2) Each of our hotel management agreements or leases provides for payment to

us of an annual minimum return or rent, respectively. Certain of these

minimum payment amounts are secured by full or limited guarantees or

security deposits as more fully described below. In addition, certain of

our hotel management agreements provide for payment to us of additional

amounts to the extent of available cash flows as defined in the management

       agreement. Payments of these additional amounts are not guaranteed or
       secured by deposits. Annualized minimum rent amounts represent cash rent
       amounts due to us and exclude adjustments necessary to record rent on a
       straight-line basis.

(3) We define hotel coverage as combined total hotel property level revenues

minus all hotel property level expenses and FF&E reserve escrows that are

       not subordinated to hotel minimum returns or rents due to us (which data
       is provided to us by our hotel managers or tenant), divided by the hotel

minimum returns or rents due to us. Coverage amounts for the IHG agreement

       include data for periods prior to our ownership of certain hotel
       properties. Coverage amounts for our Sonesta agreement include data for
       two hotels prior to when they were managed by Sonesta.

(4) During the three months ended June 30, 2020, ten Sonesta hotels, four IHG

       hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel
       were closed due to impact of COVID-19 pandemic.

(5) We lease 102 IHG branded hotels (20 Staybridge Suites®, 61 Candlewood

Suites®, two InterContinental®, 11 Crowne Plaza®, three Holiday Inn® and

five Kimpton® Hotels & Restaurants) in 30 states in the U.S., the District

of Columbia and Ontario, Canada to one of our wholly owned taxable REIT

subsidiaries, or TRSs. These 102 hotels are managed by subsidiaries of IHG

under a combination management agreement. We lease one additional

InterContinental® branded hotel in Puerto Rico to a subsidiary of IHG. The

annual minimum return amount presented in the table above includes $7,908

of minimum rent related to the leased Puerto Rico hotel. The management

agreement and the lease expire in 2036; IHG has two renewal options for 15

years each for all, but not less than all, of the hotels.

As of June 30, 2020, we held a security deposit of $8,992 under this agreement
to cover shortfalls in hotel cash flows to pay minimum returns and rent due to
us during the period. This security deposit, if utilized, may be replenished and
increased up to $100,000 from the hotels' available cash flows in excess of our
minimum return, working capital advances and certain management fees, if any. On
June 1, 2020, we entered into a letter agreement with respect to certain matters
related to the IHG agreement, including waiving the minimum security deposit
requirement through 2021. In July 2020, we applied the remaining security
deposit securing the obligations of IHG under the IHG agreement. We did not
receive any payments from IHG to cure shortfalls for the balance of the July
minimum returns and rents of $8,395 due to us, after applying the remaining
security deposit, or the August 2020 minimum returns and rents of $18,045 due to
us. In July 2020 we sent IHG a notice of default and termination and in August
2020, we sent IHG an additional notice of default. We are in discussions with
IHG to see if there may be a mutually beneficial resolution. Absent a cure of
these defaults by IHG, or if no agreement is reached, we currently plan to
transition management and branding of these 103 hotels to Sonesta.
The IHG agreement requires 5% of gross revenues from hotel operations be placed
in escrow for hotel maintenance and periodic renovations, or an FF&E reserve. As
part of the June letter agreement we entered, this requirement to fund FF&E
reserves was waived through September 30, 2020.

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In addition to our minimum return, this management agreement provides for an
annual additional return payment to us of $12,067 from the hotels' available
cash flows after payment of hotel operating expenses, funding of the required
FF&E reserve payment of our minimum return, working capital advances, payment of
certain management fees and replenishment and expansion of the security deposit,
if any. In addition, the agreement provides for payment to us of 50% of the
hotels' available cash flows after payment to us of the annual additional return
amount. These additional return amounts are not guaranteed or secured by the
security deposit we held.
(6)    We lease our 122 Marriott branded hotels (two full service Marriott®, 35

Residence Inn by Marriott®, 71 Courtyard by Marriott®, 12 TownePlace

Suites by Marriott® and two SpringHill Suites by Marriott® hotels) in 31

states to certain of our TRSs. The hotels under the Marriott agreement are

managed by subsidiaries of Marriott and require aggregate annual minimum

returns of $192,891. The Marriott agreement is scheduled to expire in 2035

       and Marriott has two renewal options for 10 years each for all, but not
       less than all, of the hotels.


As of June 30, 2020, we fully utilized the remaining security deposit of $4,790
we held under this agreement to cover payment shortfalls of our minimum returns.
This security deposit may be replenished and increased up to $64,700 from a
share of the hotels' available cash flows in excess of our minimum return,
certain management fees and working capital advances, if any. Marriott also
provided us with a $30,000 limited guaranty to cover payment shortfalls up to
85% of our minimum return after the available security deposit balance has been
depleted. As of June 30, 2020, there was no security deposit available to cover
future payment shortfalls and the $30,000 guaranty was exhausted. This limited
guaranty expired when it was exhausted. We have the right to terminate the
Marriott agreement after the security deposit and the guaranty have been
depleted if Marriott fails to fund up to 80% of the minimum returns due to us.
The Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel
operations be placed in an FF&E reserve. As a result of current market
conditions, we and Marriott have agreed to suspend contributions to the FF&E
reserve under the Marriott agreement for the remainder of 2020.
In addition to our minimum return, this agreement provides for payment to us of
60% of the hotels' available cash flows after payment of hotel operating
expenses, funding of the required FF&E reserve, payment of our minimum return,
payment of certain management fees, working capital advances and replenishment
of the security deposit. This additional return amount is not guaranteed or
secured by the security deposit.
(7)    We lease our 53 Sonesta branded hotels (seven Royal Sonesta® Hotels, seven

Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states

to certain of our TRSs. The hotels are managed by Sonesta under a

combination management agreement which expires in 2037; Sonesta has two

renewal options for 15 years each for all, but not less than all, of these

53 hotels.

We have no security deposit or guaranty from Sonesta. Accordingly, payment by
Sonesta of the minimum return due to us under this management agreement is
limited to the hotels' available cash flows after the payment of operating
expenses, including certain management fees, and we are financially responsible
for operating cash flows deficits, if any.
In addition to our minimum return, this management agreement provides for
payment to us of 80% of the hotels' available cash flows after payment of hotel
operating expenses, including certain management fees to Sonesta, our minimum
return, working capital advances and any required FF&E reserves.
(8)    We lease our 22 Hyatt Place® branded hotels in 14 states to one of our

TRSs. The hotels are managed by a subsidiary of Hyatt, under a combination

management agreement that expires in 2030. Hyatt has two renewal options

for 15 years each for all, but not less than all, of the hotels.

We have a limited guaranty of $50,000 under this agreement to cover payment
shortfalls of our minimum return. As of June 30, 2020, the available Hyatt
guaranty was $8,561. The guaranty is limited in amount but does not expire in
time and may be replenished from a share of the hotels' available cash flows in
excess of our minimum return and our working capital advances.
In addition to our minimum return, this management agreement provides for
payment to us of 50% of the hotels' available cash flows after payment of
operating expenses, funding the required FF&E reserve, payment of our minimum
return, our working capital advances and reimbursement to Hyatt of working
capital and guaranty advances, if any. This additional return is not guaranteed.
Our Hyatt agreement requires 5% of gross revenues from hotel operations be
placed in an FF&E reserve, subject to available cash flow.
(9)    We lease our nine Radisson branded hotels (four Radisson® Hotels &

Resorts, four Country Inns & Suites® by Radisson and one Radisson Blu®

hotel) in six states to one of our TRSs and these hotels are managed by a

subsidiary of Radisson under a combination management agreement which

expires in 2035 and Radisson has two 15-year renewal options for all, but

not less than all, of the hotels.

We have a limited guaranty of $47,523 under this agreement to cover payment
shortfalls of our minimum return. As of June 30, 2020, the available Radisson
guaranty was $27,426. The guaranty is limited in amount but does not expire in
time and may be replenished from a share of the hotels' available cash flows in
excess of our minimum return and our working capital advances.
In addition to our minimum return, this management agreement provides for
payment to us of 50% of the hotels' available cash flows after payment of
operating expenses, funding the required FF&E reserve, payment of our minimum
return, our working capital advances and reimbursement to Radisson of working
capital and guaranty advances, if any. This additional return is not guaranteed.
Our Radisson agreement requires 5% of gross revenues from hotel operations be
placed in an FF&E reserve. As a result of current market conditions, effective
April 1, 2020, we and Radisson have agreed to suspend contributions to the FF&E
reserve under our Radisson agreement for the remainder of 2020.
(10)   We lease our 20 Wyndham branded hotels (four Wyndham Hotels and Resorts®
       and 16 Hawthorn Suites® hotels) in 13 states to one of our TRSs. The
       hotels are managed by a subsidiary of Wyndham under a combination
       management agreement which expires in September 2020 and we expect to
       transition management and branding of these hotels to Sonesta upon
       expiration of the agreement unless sooner terminated with respect to any
       hotels that are sold. We have no guarantee or security deposit from
       Wyndham. Payment by Wyndham is limited to the available cash flows after
       payment of operating expenses. Wyndham is not entitled to any base
       management fees for the remainder of the agreement.



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The following tables summarize the operating statistics, including ADR,
occupancy and RevPAR reported to us by our hotel managers or tenant by
management agreement or lease for the periods indicated. All operating data
presented are based upon the operating results provided by our hotel managers
and tenant for the indicated periods. We have not independently verified our
managers' or tenants' operating data.

                                 No. of          Three Months Ended June 30,               Six Months Ended June 30,
                      No. of     Rooms /
                      Hotels     Suites        2020         2019         Change         2020         2019         Change
ADR
IHG  (1) (2)            103      17,154     $  76.44     $ 125.17         (38.9 %)      99.80       124.01         (19.5 %)
Marriott (1)            122      17,085       103.97       139.22         (25.3 %)     128.86       139.68          (7.7 %)
Sonesta (1) (2)
(3)                      53       9,588        87.14       155.21         (43.9 %)     118.44       150.98         (21.6 %)
Hyatt                    22       2,724        81.62       110.52         (26.1 %)      98.82       111.68         (11.5 %)
Radisson (1) (2)          9       1,939        95.37       137.14         (30.5 %)     119.91       133.74         (10.3 %)
Wyndham (1)              20       2,914        61.32        83.44         (26.5 %)      71.27        83.10         (14.2 %)
All Hotels Total /
Average                 329      51,404     $  84.34     $ 132.55         (36.4 %)   $ 110.24     $ 131.39         (16.1 %)

OCCUPANCY
IHG  (1) (2)            103      17,154         38.2 %       80.8 %   (42.6)Pts          50.3 %       76.6 %   (26.3)Pts
Marriott (1)            122      17,085         19.5 %       76.1 %   (56.6)Pts          36.2 %       70.8 %   (34.6)Pts
Sonesta (1) (2)
(3)                      53       9,588         25.9 %       73.8 %   (47.9)Pts          38.3 %       68.4 %   (30.1)Pts
Hyatt                    22       2,724         28.1 %       82.8 %   (54.7)Pts          43.8 %       78.7 %   (34.9)Pts
Radisson (1) (2)          9       1,939         12.4 %       75.2 %   (62.8)Pts          33.1 %       69.3 %   (36.2)Pts
Wyndham (1)              20       2,914         31.4 %       70.5 %   (39.1)Pts          42.1 %       65.5 %   (23.4)Pts
All Hotels Total /
Average                 329      51,404         27.8 %       77.2 %   (49.4)Pts          41.9 %       72.3 %   (30.4)Pts

RevPAR
IHG  (1) (2)            103      17,154     $  29.20     $ 101.14         (71.1 %)      50.20        94.99         (47.2 %)
Marriott (1)            122      17,085        20.27       105.95         (80.9 %)      46.65        98.89         (52.8 %)
Sonesta (1) (2)
(3)                      53       9,588        22.57       114.54         (80.3 %)      45.36       103.27         (56.1 %)
Hyatt                    22       2,724        22.94        91.51         (74.9 %)      43.28        87.89         (50.8 %)
Radisson (1) (2)          9       1,939        11.83       103.13         (88.5 %)      39.69        92.68         (57.2 %)
Wyndham (1)              20       2,914        19.25        58.83         (67.3 %)      30.00        54.43         (44.9 %)
All Hotels Total /
Average                 329      51,404     $  23.45     $ 102.33         (77.1 %)   $  46.19     $  94.99         (51.4 %)

(1) During the three months ended June 30, 2020, ten Sonesta hotels, four IHG

       hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel
       were closed due to impact of COVID-19 pandemic.


(2)    Operating data includes data for certain hotels for periods prior to when
       we acquired them.


(3)    Operating data includes data for two hotels for periods prior to when
       these were managed by Sonesta.


Net Lease Portfolio
As of June 30, 2020, our 809 net lease properties located in 42 states were
leased to 180 tenants. These tenants operate in 22 distinct industries including
travel centers, casual dining and quick service restaurants, movie theaters,
health and fitness, automobile service and others. TA is our largest tenant and
leases 179 travel centers under five master lease agreements that expire between
2029 and 2035 and require annual minimum rents of $246,110, which represents
approximately 25.6% of our total minimum returns and rent as of June 30, 2020.
As of June 30, 2020, our net lease properties were 99% occupied and we
had 15 properties available for lease. During 2020 we entered into lease
renewals for 506,780 rentable square feet at weighted (by rentable square feet)
average rents that were 7.0% above prior rents for the same space. The weighted
(by rentable square feet) average lease term for these leases was 13.7 years and
leasing concessions and capital commitments were $7,501, or $14.80 per square
foot. Also during the quarter ended June 30, 2020, we entered into new leases
for an aggregate of 39,892 rentable square feet at weighted (by rentable square
feet) average rents that were 25.9% below prior rents for the same space. The
weighted (by rentable square feet) average lease term for these leases was six
years and leasing concessions and capital commitments were $156,629, or $3.93
per square foot.

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As of June 30, 2020, our net lease tenants operated across more than 129 brands. The following table identifies the top ten brands.

                                                                                                Percent of Total
                                                              Percent of        Annualized         Annualized
                                No. of     Investment (1)        Total         Minimum Rent     Minimum Rent (2)
    Brand                      Buildings        (3)           Investment          (2) (3)             (3)          Coverage (4)

1. TravelCenters of America 134 $ 2,281,589 43.8 %

$     168,011           45.5 %            1.95x

2. Petro Stopping Centers 45 1,021,226 19.6 %

         78,099           21.1 %            1.55x
3.  AMC Theatres                  13            121,701           2.3 %               9,412            2.5 %            0.99x
4.  The Great Escape              14             98,242           1.9 %               7,140            1.9 %            4.13x
5.  Life Time Fitness              3             92,617           1.8 %               5,246            1.4 %            2.99x
6.  Buehler's Fresh Foods          5             76,536           1.5 %               5,143            1.4 %            4.33x
7.  Heartland Dental              59             61,120           1.2 %               4,493            1.2 %            2.07x
8.  Pizza Hut                     61             61,108           1.2 %               4,271            1.2 %            1.26x
9.  Regal Cinemas                  6             44,476           0.9 %               3,658            1.0 %            0.89x
10. Express Oil Change            23             49,724           1.0 %               3,379            0.9 %            3.50x
11. Other (5)                     446         1,298,723          24.8 %              80,571           21.9 %             3.01 x
    Total                         809      $  5,207,062         100.0 %       $     369,423          100.0 %            2.16x

(1) Represents historical cost of our properties plus capital improvements

funded by us less impairment write-downs, if any.

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

(3) As of June 30, 2020, we have nine net lease properties with a carrying

       value of $8,248 and annual minimum rent of $789 classified as held for
       sale.

(4) See page 36 for our definition of coverage.

(5) Other includes 119 distinct brands with an average investment of $10,914

and average annual minimum rent of $677.

As of June 30, 2020, our top 10 net lease tenants based on annualized minimum
rent are listed below.
                                                                                                            Percent of
                                                                        Percent of        Annualized           Total
                             Brand        No. of     Investment (1)        Total         Minimum Rent       Annualized

Tenant Affiliation Buildings (2) Investment (2) (3) Minimum Rent Coverage (4)

    TravelCenters of     TravelCenters
1.  America                and Petro        179      $  3,302,815          63.4 %       $     246,110          66.6 %              1.83x (5) (6)
    Universal Pool         The Great
2.  Co., Inc.               Escape          14             98,242           1.9 %               7,140           1.9 %              4.13x
    Healthy Way of         Life Time
3.  Life II, LLC            Fitness          3             92,617           1.8 %               5,246           1.4 %              2.99x (5)
4.  Styx Acquisition,      Buehler's         5             76,536           1.5 %               5,143           1.4 %
    LLC                   Fresh Foods                                                                                              4.33x (5)
    Professional
    Resource               Heartland
5.  Development, Inc.       Dental          59             61,120           1.2 %               4,493           1.2 %              2.07x
    Regal Cinemas,
6.  Inc.                 Regal Cinemas       6             44,476           0.9 %               3,658           1.0 %              0.89x
    Eastwynn Theatres,
7.  Inc.                 AMC Theatres        5             41,771           0.8 %               3,541           1.0 %              0.57x
    Express Oil           Express Oil
8.  Change, LLC             Change          23             49,724           1.0 %               3,379           0.9 %              3.50x
    Pilot Travel           Flying J
9.  Centers LLC          Travel Plaza        3             41,681           0.8 %               3,151           0.9 %              3.46x
    B&B Movie
10. Theatres, LLC        B&B Theatres        4             34,369           0.7 %               3,100           0.8 %              0.85x
    Subtotal, top 10                        301         3,843,351          74.0 %             284,961          77.1 %              1.96x
11. Other (7)               Various         508         1,345,747          26.0 %              84,462          22.9 %              2.84x
    Total                                   809      $  5,189,098         100.0 %       $     369,423         100.0 %              2.16x


(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.

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.

(3) As of June 30, 2020, we have nine net lease properties with an aggregate

       carrying value of $8,248 and annual minimum rent of $789 classified as
       held for sale.

(4) See page 36 for our definition of coverage.

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(5) Leases subject to full or partial corporate guarantee.

(6) TA is our largest tenant. We lease 179 travel centers (134 under the

TravelCenters of America brand and 45 under the Petro Stopping Centers

brand) to a subsidiary of TA under master leases that expire in 2029,

2031, 2032, 2033 and 2035, respectively. TA has two renewal options for 15

years each for all of the travel centers. In addition to the payment of

our minimum rent, the TA leases provide for payment to us of percentage

rent based on increases in total non-fuel revenues over base levels (3% of

non-fuel revenues above 2015 non-fuel revenues). These leases provide for

       payment of an additional half percent (0.5%) of non-fuel revenues above
       2019 non-fuel base revenues. TA's remaining deferred rent obligation of

$48,440 is being paid in quarterly installments of $4,404 through January

       31, 2023.


(7)    Other includes 170 tenants with an average investment of $7,916 and
       average annual minimum rent of $497.

As of June 30, 2020, our net lease tenants operated across 22 distinct industries within the service-oriented retail sector of the U.S. economy.

                                                                                   Percent of
                                                  Percent of     Annualized           Total
                      No. of     Investment (1)     Total       Minimum Rent       Annualized
Industry             Buildings        (2)         Investment       (2) (3)  

Minimum Rent Coverage (4)

Travel Centers          182      $  3,344,496       64.2%      $     249,261          67.5 %              1.85x
Restaurants-Quick
Service                 250           319,543        6.1%             21,106           5.7 %              2.27x
Movie Theaters          24            209,846        4.0%             16,770           4.5 %              0.95x
Restaurants-Casual
Dining                  61            216,346        4.1%             11,076           3.0 %              1.68x
Health and Fitness      13            184,744        3.5%              9,398           2.5 %              2.57x
Miscellaneous
Retail                  19            114,433        2.2%              7,140           2.0 %              4.13x
Medical/Dental
Office                  71            118,098        2.3%              9,172           2.5 %              2.63x
Grocery                 19            129,219        2.5%              8,599           2.3 %              4.32x
Automotive Parts
and Service             63             96,496        1.9%              6,557           1.8 %              3.01x
Apparel                  1             11,027        0.2%                670           0.2 %             -6.53x
Automotive Dealers       9             68,756        1.3%              4,985           1.3 %              4.73x
Entertainment            4             61,436        1.2%              1,782           0.5 %              2.15x
Educational
Services                 9             55,647        1.1%              4,127           1.1 %              2.59x
Sporting Goods           3             52,022        1.0%              3,489           0.9 %              3.34x
Miscellaneous
Manufacturing            6             31,824        0.6%              2,294           0.6 %             16.02x
Building Materials      27             30,036        0.6%              2,510           0.7 %              3.89x
Car Washes               5             28,658        0.6%              2,076           0.6 %              4.60x
Drug Stores and
Pharmacies               8             23,970        0.5%              1,647           0.4 %              1.46x
Legal Services           5             11,362        0.2%              1,009           0.3 %              2.08x
General
Merchandise              3              7,492        0.1%                555           0.2 %              1.81x
Home Furnishings         5             37,215        0.7%              2,854           0.8 %              0.80x
Dollar Stores            3              2,971        0.1%                187           0.1 %              3.15x
Other                    4             28,748        0.6%              2,159           0.5 %              4.33x
Vacant                  15             22,677        0.4%                  -             - %                  -
      Total             809      $  5,207,062       100.0%     $     369,423         100.0 %              2.16x


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

(2) As of June 30, 2020, we have nine net lease properties with an aggregate

       carrying value of $8,248 and annual minimum rent of $789 classified as
       held for sale.


(3)    Each of our leases provides for payment to us of minimum rent,

respectively. 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.

(4) See page 36 for our definition of coverage.

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As of June 30, 2020, lease expirations at our net lease properties by year are
as follows.
                                                                Percent of
                                                                   Total
                                                                Annualized      Cumulative % of
                                       Annualized Minimum      Minimum Rent      Total Minimum
    Year(1)          Square Feet        Rent Expiring (2)        Expiring        Rent Expiring

      2020                166,158     $             2,555          0.7%              0.7%
      2021                555,447                   5,852          1.6%              2.3%
      2022                853,374                  10,824          2.9%              5.2%
      2023                150,293                   2,512          0.7%              5.9%
      2024                688,836                  10,018          2.7%              8.6%
      2025                438,433                   8,426          2.3%              10.9%
      2026                868,969                   9,808          2.7%              13.6%
      2027              1,198,874                  15,539          4.2%              17.8%
      2028                512,639                   7,430          2.0%              19.8%
      2029              1,311,612                  47,322          12.8%             32.6%
      2030                184,368                   3,908          1.1%              33.7%
      2031              1,397,033                  49,723          13.4%             47.1%
      2032              1,125,517                  50,438          13.6%             60.7%
      2033              1,100,723                  53,194          14.4%             75.1%
      2034                134,640                   4,504          1.2%              76.3%
      2035              2,316,553                  80,764          21.9%             98.2%
      2036                320,792                   3,537          1.0%              99.2%
      2037                      -                       -          0.0%              99.2%
      2038                 10,183                     416          0.1%              99.3%
      2039                185,437                   2,501          0.7%             100.0%
      2040                  1,739                     152          0.0%             100.0%
     Total             13,521,620     $           369,423          100%

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

(2) As of June 30, 2020, we have nine net lease properties with an annual

minimum rent of $789 classified as held for sale.

As of June 30, 2020, shown below is the list of our top ten states where our net
lease properties were located. No other state represents more than 3% of our net
lease annual minimum rents.
                                                                             Percent of Total
                                                                            Annualized Minimum
       State               Square Feet          Annualized Minimum Rent            Rent

       Texas                    1,205,393     $                  31,985            8.7%
      Illinois                  1,019,885                        26,147            7.1%
        Ohio                    1,307,589                        26,033            7.0%
     California                   399,045                        20,981            5.7%
      Indiana                     637,239                        18,034            4.9%
    Pennsylvania                  642,533                        17,821            4.8%
      Arizona                     476,651                        16,977            4.6%
      Georgia                     597,248                        16,872            4.6%
      Florida                     538,130                        15,852            4.3%
     New Mexico                   246,478                        11,012            3.0%
       Other                    6,658,702                       167,709            45.3%
                               13,728,893     $                 369,423           100.0%



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Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC,
RMR Inc., TA and Sonesta and others affiliated with them. For example: we have
no employees and the personnel and various services we require to operate our
business are provided to us by RMR LLC pursuant to our business and property
management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC;
Adam Portnoy, the Chair of our Board of Trustees and one of our Managing
Trustees, is the sole trustee, an officer and the controlling shareholder of ABP
Trust, which is the controlling shareholder of RMR Inc., a managing director,
president and chief executive officer of RMR Inc., an officer and employee of
RMR LLC, the chair of the board of directors and a managing director of TA, a
director of Sonesta and, with a person related to him, is a majority owner of
Sonesta; John Murray, our other Managing Trustee and our President and Chief
Executive Officer, also serves as an executive officer of RMR LLC and a director
of Sonesta; and our Secretary also serves as a managing director and executive
officer of RMR Inc. and a director of Sonesta. We also have relationships and
historical and continuing transactions with other companies to which RMR LLC or
its subsidiaries provide management services and which may have trustees,
directors and officers who are also trustees, directors or officers of us, RMR
LLC or RMR Inc. and some of our Trustees and officers serve as trustees,
directors or officers of these companies. For example: TA, is our former
subsidiary and our largest tenant, and Sonesta, is one of our hotel managers and
we own an approximate 34% equity interest in Sonesta.
For further information about these and other such relationships and related
person transactions, see Notes 6, 9 and 10 to our Notes to condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for
our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In
addition, see the section captioned "Risk Factors" of our 2019 Annual Report and
in this Quarterly Report on Form 10-Q for a description of risks that may arise
as a result of these and other related person transactions and relationships.
Our filings with the SEC and copies of certain of our agreements with these
related persons, including our business and property management agreements with
RMR LLC and our various agreements with TA and Sonesta, are available as
exhibits to our filings with the SEC and accessible at the SEC's website,
www.sec.gov. We may engage in additional transactions with related persons,
including businesses to which RMR LLC or its subsidiaries provide management
services.
Non-GAAP Financial Measures
We present certain "non-GAAP financial measures" within the meaning of
applicable SEC rules, including funds from operations, or FFO, and normalized
funds from operations, or Normalized FFO. These measures do not represent cash
generated by operating activities in accordance with GAAP and should not be
considered alternatives to net income (loss) as indicators of our operating
performance or as measures of our liquidity. These measures should be considered
in conjunction with net income (loss) as presented in our condensed consolidated
statements of income (loss). We consider these non-GAAP measures to be
appropriate supplemental measures of operating performance for a REIT, along
with net income. We believe these measures provide useful information to
investors because by excluding the effects of certain historical amounts, such
as depreciation and amortization expense, they may facilitate a comparison of
our operating performance between periods and with other REITs.
Funds From Operations and Normalized Funds From Operations
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 certain other adjustments
currently not applicable to us. In calculating Normalized FFO, we adjust for the
item shown below and include business management incentive fees, if any, only in
the fourth quarter versus the quarter when they are recognized as an expense in
accordance with GAAP due to their quarterly volatility not necessarily being
indicative of our core operating performance and the uncertainty as to whether
any such business management incentive fees will be payable when all
contingencies for determining such fees are known at the end of the calendar
year. 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 maintain our
qualification for taxation as a REIT, limitations in our credit agreement and
public debt covenants, the availability to us of debt and equity capital, our
distribution rate as a percentage of the trading price of our common shares, or
dividend yield, and to the dividend yield of other REITs, our expectation of our
future capital requirements and operating performance and our expected needs for
and availability of cash to pay our obligations. Other real estate companies and
REITs may calculate FFO and Normalized FFO differently than we do.

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Our calculations of FFO and Normalized FFO for the three and six months ended
June 30, 2020 and 2019 and reconciliations of net income, the most directly
comparable financial measure under GAAP reported in our condensed consolidated
financial statements, to those amounts appear in the following table (amounts in
thousands, except per share amounts).
                                                   For the Three Months Ended     For the Six Months Ended June
                                                            June 30,                           30,
                                                      2020             2019           2020             2019
Net income (loss)                                 $  (37,349 )     $    

8,782 $ (70,999 ) $ 234,569

            Depreciation and amortization
Add (Less): expense                                  127,427           99,196        255,353          198,561
            (Gain) loss on sale of real estate
            (1)                                        2,853                -          9,764         (159,535 )
            Loss on asset impairment (2)              28,514                -         45,254                -
            Unrealized (gains) and losses on
            equity securities, net (3)                (3,848 )         60,788          1,197           39,811
            Adjustments to reflect the entity's
            share of FFO attributable to an
            investee (4)                                 327                -            439                -
FFO                                                  117,924          168,766        241,008          313,406
            Loss on early extinguishment of
Add (less): debt (5)                                   6,970                -          6,970                -
            Gain on insurance settlement, net
            of tax (6)                               (46,736 )              -        (46,736 )              -
Normalized FFO                                    $   78,158       $  168,766     $  201,242       $  313,406

            Weighted average shares outstanding
            (basic)                                  164,382          164,284        164,376          164,281
            Weighted average shares outstanding
            (diluted) (7)                            164,382          164,326        164,376          164,324

Basic and diluted per common share amounts:

            Net income (loss)                     $    (0.23 )     $     0.05     $    (0.43 )     $     1.43
            FFO                                   $     0.72       $     1.03     $     1.47       $     1.91
            Normalized FFO                        $     0.48       $     1.03     $     1.22       $     1.91
            Distributions declared per share      $     0.01       $     0.54     $     0.55       $     1.07

(1) We recorded a $2,853 net loss on sale of real estate during the three

months ended June 30, 2020 in connection with the sales of four net lease

properties, a $9,764 net loss on sale of real estate during the six months

ended June 30, 2020 in connection with the sales of six net lease

properties and a $159,535 gain on sale of real estate during the three

months ended March 31, 2019 in connection with the sales of 20 travel

centers.

(2) We recorded a $28,514 loss on asset impairment during the three months

ended June 30, 2020 to reduce the carrying value of 17 hotel properties

and four net lease properties to their estimated fair value and a $45,254

       loss on asset impairment during the six months ended June 30, 2020 to
       reduce the carrying value of 17 hotel properties and six 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 former investment

in RMR Inc. and our investment in TA common shares to their fair values as

of the end of the period. We sold our shares of RMR Inc. on July 1, 2019.

(4) Represents adjustments to reflect our proportionate share of FFO related

       to our equity investment in Sonesta.


(5)    We recorded a $6,970 loss on early extinguishment of debt during the three
       and six months ended June 30, 2020 related to our repurchase of
       $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021

for an aggregate purchase price of $355,971, excluding accrued interest.

(6) We recorded a $62,386 gain on insurance settlement during the three months

ended June 30, 2020 for insurance proceeds received for its 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 $15,650 deferred tax liability as a

       result of the book to tax difference related to this accounting in the
       three months ended June 30, 2020.


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




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