Table of Contents


     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITYSERVICE PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 04-3262075
(State or Other Jurisdiction of
Incorporation or Organization)
 (IRS Employer Identification No.)
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634

(Address of Principal Executive Offices) (Zip Code)
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458
(Address of Principal Executive Offices) (Zip Code)
617-964-8389617-964-8389
(Registrant’s Telephone Number, Including Area Code)
Hospitality Properties Trust
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of each Exchange on which Registered
Common Shares of Beneficial InterestSVCThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer

 Smaller reporting company
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of November 5, 2018:   164,442,3797, 2019: 164,564,523
     

HOSPITALITYSERVICE PROPERTIES TRUST
FORM 10-Q
September 30, 2018
2019
INDEX
  Page
 
   
  
 
   
 
   
 
   
 
   
 
   
  
 
   
  
 
   
 
   
 
   
 
   
  
 
   
  
 
   
  
 
   
 
References in this Quarterly Report on Form 10-Q to “HPT”, “we”, “us”the Company, SVC, we, us or “our”our include Service Properties Trust (formerly known as Hospitality Properties TrustTrust) and itsour consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

Part I Financial Information
Item 1. Financial Statements
HOSPITALITYSERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except share data)
 September 30, December 31, September 30, December 31,
 2018 2017 2019 2018
ASSETS        
Real estate properties:        
Land $1,673,113
 $1,668,797
 $2,062,776
 $1,626,239
Buildings, improvements and equipment 7,964,429
 7,758,862
 9,237,760
 7,896,734
Total real estate properties, gross 9,637,542
 9,427,659
 11,300,536
 9,522,973
Accumulated depreciation (2,998,741) (2,784,478) (3,086,684) (2,973,384)
Total real estate properties, net 6,638,801
 6,643,181
 8,213,852
 6,549,589
Acquired real estate leases and other intangibles 392,673
 105,749
Assets held for sale 604,989
 144,008
Cash and cash equivalents 19,849
 24,139
 16,990
 25,966
Restricted cash 65,644
 73,357
 53,519
 50,037
Due from related persons 88,164
 78,513
 72,587
 91,212
Other assets, net 439,095
 331,195
 160,893
 210,518
Total assets $7,251,553
 $7,150,385
 $9,515,503
 $7,177,079
        
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Unsecured revolving credit facility $143,000
 $398,000
 $790,000
 $177,000
Unsecured term loan, net 397,143
 399,086
 397,740
 397,292
Senior unsecured notes, net 3,596,275
 3,203,962
 5,284,933
 3,598,295
Security deposits 133,770
 126,078
 122,763
 132,816
Accounts payable and other liabilities 178,321
 184,788
 292,161
 211,332
Due to related persons 10,473
 83,049
 18,920
 62,913
Total liabilities 4,458,982
 4,394,963
 6,906,517
 4,579,648
        
Commitments and contingencies 
 
 

 

        
Shareholders’ equity:        
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,442,379 and 164,349,141 shares issued and outstanding, respectively 1,644
 1,643
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,565,303 and 164,441,709 shares issued and outstanding, respectively 1,646
 1,644
Additional paid in capital 4,544,449
 4,542,307
 4,547,055
 4,545,481
Cumulative net income 3,684,167
 3,310,017
Cumulative other comprehensive income (loss) (108) 79,358
Cumulative preferred distributions (343,412) (343,412)
Cumulative other comprehensive loss (175) (266)
Cumulative net income available for common shareholders 3,506,538
 3,231,895
Cumulative common distributions (5,094,169) (4,834,491) (5,446,078) (5,181,323)
Total shareholders’ equity 2,792,571
 2,755,422
 2,608,986
 2,597,431
Total liabilities and shareholders’ equity $7,251,553
 $7,150,385
 $9,515,503
 $7,177,079
The accompanying notes are an integral part of these condensed consolidated financial statements.

HOSPITALITYSERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands, except share data)
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Revenues:        
Hotel operating revenues $525,290
 $520,618
 $1,521,368
 $1,494,283
Rental income 73,619
 81,322
 210,509
 245,543
FF&E reserve income 863
 1,213
 3,365
 3,911
Total revenues 599,772
 603,153
 1,735,242
 1,743,737
         
Expenses:        
Hotel operating expenses 377,895
 365,526
 1,076,011
 1,052,121
Other operating expenses 1,707
 1,468
 4,419
 3,936
Depreciation and amortization 103,160
 101,007
 301,721
 300,308
General and administrative 12,464
 13,425
 36,906
 38,280
Total expenses 495,226
 481,426
 1,419,057
 1,394,645
         
Gain on sale of real estate 
 
 159,535
 
Dividend income 
 626
 1,752
 1,878
Unrealized gains (losses) on equity securities, net (3,950) 43,453
 (43,761) 89,348
Interest income 688
 478
 1,774
 1,093
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $2,689, $2,570, $7,829 and $7,607, respectively) (52,375) (49,308) (151,742) (145,589)
Loss on early extinguishment of debt (8,451) 
 (8,451) (160)
Income before income taxes and equity in earnings of an investee 40,458
 116,976
 275,292
 295,662
Income tax expense (467) (707) (1,266) (1,949)
Equity in earnings of an investee 83
 830
 617
 881
Net income 40,074
 117,099
 274,643
 294,594
         
Other comprehensive income (loss):        
Equity interest in investee’s unrealized gains (losses) (46) 173
 91
 90
Other comprehensive income (loss) (46) 173
 91
 90
Comprehensive income $40,028
 $117,272
 $274,734
 $294,684
         
Weighted average common shares outstanding (basic) 164,321
 164,232
 164,294
 164,212
Weighted average common shares outstanding (diluted) 164,348
 164,274
 164,332
 164,242
         
Net income per common share (basic and diluted) $0.24
 $0.71
 $1.67
 $1.79
The accompanying notes are an integral part of these condensed consolidated financial statements.


SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
(in thousands, except share data)
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
Revenues:        
Hotel operating revenues $521,250
 $495,550
 $1,496,125
 $1,392,995
Rental income 80,690
 80,896
 243,701
 240,274
FF&E reserve income 1,213
 1,142
 3,911
 3,524
Total revenues 603,153
 577,588
 1,743,737
 1,636,793
         
Expenses:        
Hotel operating expenses 366,994
 343,274
 1,056,057
 965,546
Depreciation and amortization 101,007
 98,205
 300,308
 286,811
General and administrative 13,425
 13,404
 38,280
 76,097
Total expenses 481,426
 454,883
 1,394,645
 1,328,454
         
Gain on sale of real estate 
 9,348
 
 9,348
Dividend income 626
 626
 1,878
 1,878
Unrealized gains on equity securities 43,453
 
 89,348
 
Interest income 478
 211
 1,093
 590
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $2,570, $2,194, $7,607 and $6,541, respectively) (49,308) (46,574) (145,589) (135,329)
Loss on early extinguishment of debt 
 
 (160) 
Income before income taxes and equity in earnings of an investee 116,976
 86,316
 295,662
 184,826
Income tax expense (707) (619) (1,949) (1,761)
Equity in earnings of an investee 830
 31
 881
 533
Net income 117,099
 85,728
 294,594
 183,598
Other comprehensive income:        
Unrealized gain on investment securities 
 7,273
 
 19,923
Equity interest in investee’s unrealized gains 173
 116
 90
 295
Other comprehensive income 173
 7,389
 90
 20,218
Comprehensive income $117,272
 $93,117
 $294,684
 $203,816
         
Net income $117,099
 $85,728
 $294,594
 $183,598
Preferred distributions 
 
 
 (1,435)
Excess of liquidation preference over carrying value of preferred shares redeemed 
 
 
 (9,893)
Net income available for common shareholders $117,099
 $85,728
 $294,594
 $172,270
         
Weighted average common shares outstanding (basic) 164,232
 164,149
 164,212
 164,131
Weighted average common shares outstanding (diluted) 164,274
 164,188
 164,242
 164,168
         
Net income available for common shareholders per common share (basic and diluted) $0.71
 $0.52
 $1.79
 $1.05
 Common Shares Additional
Paid in
Capital
 
Cumulative
Net Income
Available for
Common
Shareholders
 
Cumulative
Other
Comprehensive
Income (Loss)
  
 Number of
Shares
 Common
Shares
 
Cumulative
Common
Distributions
     
       Total
              
Balance at December 31, 2018164,441,709
 $1,644
 $(5,181,323) $4,545,481
 $3,231,895
 $(266) $2,597,431
Net income
 
 
 
 225,787
 
 225,787
Equity interest in investee’s unrealized gains
 
 
 
 
 66
 66
Common share grants
 
 
 436
 
 
 436
Distributions
 
 (87,154) 
 
 
 (87,154)
Balance at March 31, 2019164,441,709
 $1,644
 $(5,268,477) $4,545,917
 $3,457,682
 $(200) $2,736,566
Net income
 
 
 
 8,782
 
 8,782
Equity interest in investee’s unrealized gains
 
 
 
 
 71
 71
Common share grants15,000
 1
 
 868
 
 
 869
Common share repurchases and forfeitures(2,172) 
 
 (48) 
 
 (48)
Distributions
 
 (88,798) 
 
 
 (88,798)
Balance at June 30, 2019164,454,537
 $1,645
 $(5,357,275) $4,546,737
 $3,466,464
 $(129) $2,657,442
Net income
 
 
 
 40,074
 
 40,074
Equity interest in investee’s unrealized losses
 
 
 
 
 (46) (46)
Common share grants140,100
 1
 
 1,067
 
 
 1,068
Common share repurchases(29,334) 
 
 (749) 
 
 (749)
Distributions
 
 (88,803) 
 
 
 (88,803)
Balance at September 30, 2019164,565,303
 $1,646
 $(5,446,078) $4,547,055
 $3,506,538
 $(175) $2,608,986
              

 Common Shares Additional
Paid in
Capital
 
Cumulative
Net Income
Available for
Common
Shareholders
 
Cumulative
Other
Comprehensive
Income (Loss)
  
 Number of
Shares
 Common
Shares
 
Cumulative
Common
Distributions
     
       Total
              
Balance at December 31, 2017164,349,141
 $1,643
 $(4,834,491) $4,542,307
 $2,966,605
 $79,358
 $2,755,422
Cumulative effect of accounting change
 
 
 
 79,556
 (79,556) 
Net income
 
 
 
 80,206
 
 80,206
Equity interest in investee’s unrealized losses
 
 
 
 
 (93) (93)
Common share repurchases(3,394) 
 
 (101) 
 
 (101)
Distributions
 
 (85,460) 
 
 
 (85,460)
Balance at March 31, 2018164,345,747
 $1,643
 $(4,919,951) $4,542,206
 $3,126,367
 $(291) $2,749,974
Net income
 
 
 
 97,289
 
 97,289
Equity interest in investee’s unrealized gains
 
 
 
 
 10
 10
Common share grants18,000
 1
 
 500
 
 
 501
Distributions
 
 (87,105) 
 
 
 (87,105)
Balance at June 30, 2018164,363,747
 $1,644
 $(5,007,056) $4,542,706
 $3,223,656
 $(281) $2,760,669
Net income
 
 
 
 117,099
 
 117,099
Equity interest in investee’s unrealized gains
 
 
 
 
 173
 173
Common share grants97,000
 1
 
 2,242
 
 
 2,243
Common share repurchases(18,368) (1) 
 (499) 
 
 (500)
Distributions
 
 (87,113) 
 
 
 (87,113)
Balance at September 30, 2018164,442,379
 $1,644
 $(5,094,169) $4,544,449
 $3,340,755
 $(108) $2,792,571
The accompanying notes are an integral part of these condensed consolidated financial statements.


HOSPITALITYSERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 For the Nine Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2019 2018
Cash flows from operating activities:    
    
Net income $294,594
 $183,598
 $274,643
 $294,594
Adjustments to reconcile net income to cash provided by operating activities:  
  
    
Depreciation and amortization 300,308
 286,811
 301,721
 300,308
Amortization of debt issuance costs and debt discounts and premiums as interest 7,607
 6,541
 7,829
 7,607
Straight line rental income (9,359) (9,208) 7,368
 (9,359)
Security deposits received or replenished 7,687
 37,239
Security deposits replenished (utilized) (10,052) 7,687
Loss on early extinguishment of debt 160
 
 8,451
 160
Unrealized gains on equity securities (89,348) 
Unrealized (gains) and losses on equity securities, net 43,761
 (89,348)
Equity in earnings of an investee (881) (533) (617) (881)
Gain on sale of real estate 
 (9,348) (159,535) 
Other non-cash (income) expense, net (2,226) (2,523) 109
 (2,226)
Changes in assets and liabilities:        
Due from related persons (585) (992) 3,609
 (585)
Other assets (8,627) (14,710) (6,352) (8,627)
Accounts payable and other liabilities (21,259) (21,979) 12,743
 (21,259)
Due to related persons (74,667) (12,619) (51,148) (74,667)
Net cash provided by operating activities 403,404
 442,277
 432,530
 403,404
        
Cash flows from investing activities:  
  
    
Real estate acquisitions and deposits (95,208) (594,927) (2,659,186) (95,208)
Real estate improvements (111,248) (89,955) (71,024) (111,248)
Hotel managers’ purchases with restricted cash (89,401) (64,574) (143,692) (89,401)
Hotel manager's deposit of insurance proceeds into restricted cash 18,000
 
Hotel manager’s deposit of insurance proceeds into restricted cash 14,325
 18,000
Net proceeds from sale of real estate 
 23,438
 308,200
 
Net proceeds from sale of equity securities 93,892
 
Net cash used in investing activities (277,857) (726,018) (2,457,485) (277,857)
        
Cash flows from financing activities:  
      
Proceeds from issuance of senior unsecured notes, after discounts and premiums 389,976
 598,246
 1,693,879
 389,976
Redemption of preferred shares 
 (290,000)
Repurchase of convertible senior notes 
 (8,478)
Borrowings under unsecured revolving credit facility 395,000
 631,000
 997,000
 395,000
Repayments of unsecured revolving credit facility (650,000) (364,000) (384,000) (650,000)
Deferred financing costs (12,242) (5,018) (21,869) (12,242)
Repurchase of common shares (606) (533) (794) (606)
Distributions to preferred shareholders 
 (6,601)
Distributions to common shareholders (259,678) (254,623) (264,755) (259,678)
Net cash provided by (used in) financing activities (137,550) 299,993
 2,019,461
 (137,550)
Increase (decrease) in cash and cash equivalents and restricted cash (12,003) 16,252
Decrease in cash and cash equivalents and restricted cash (5,494) (12,003)
Cash and cash equivalents and restricted cash at beginning of period 97,496
 71,352
 76,003
 97,496
Cash and cash equivalents and restricted cash at end of period $85,493
 $87,604
 $70,509
 $85,493
        
Supplemental disclosure of cash and cash equivalents and restricted cash:  
  
    
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents $19,849
 $14,489
 $16,990
 $19,849
Restricted cash 65,644
 73,115
 53,519
 65,644
Total cash and cash equivalents and restricted cash $85,493
 $87,604
 $70,509
 $85,493
        
Supplemental cash flow information:        
Cash paid for interest $158,056
 $149,261
 $171,418
 $158,056
Cash paid for income taxes 2,804
 2,588
 2,614
 2,804
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)








Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Service Properties Trust (formerly known as Hospitality Properties TrustTrust) and its subsidiaries, or HPT,SVC, we, our or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2017, as amended,2018, or our 20172018 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included. These condensed consolidated financial statements include the accounts of HPTSVC and our subsidiaries, all of which are 100% owned directly or indirectly by HPT.SVC. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’year’s condensed consolidated financial statements to conform to the current year’s presentation.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets.
We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $41,224$33,794 and $33,305$31,917 as of September 30, 20182019 and December 31, 2017,2018, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $148,418$148,017 and $140,897$148,459 as of September 30, 20182019 and December 31, 2017,2018, respectively, and consist primarily of security deposits they hold and amounts payable to certain of our hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.
Note 2. New Accounting Pronouncements
On January 1, 2018, we adoptedIn February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2014-09 (and related clarifying2016-02, Leases. Additional guidance issued by the FASB), Revenue From Contracts With Customers, which outlines a comprehensive model for entitiesand targeted improvements to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict2016-02 were made through the transferissuance of promised goodssupplemental ASUs in July 2018, December 2018 and March 2019, or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. The majority of our revenue is from hotels managed under TRS structures. The adoption of this update did not have a material impact on the amount or timing of our revenue recognition for revenues from room, food and beverage, and other hotel level sales of our managed hotels in our condensed consolidated financial statements. A lesser portion of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU No. 2014-09. We have adopted ASU No. 2014-09 using the modified retrospective approach.
On January 1, 2018, we adopted FASB ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The implementation of ASU No. 2016-01 resulted in the reclassification of historical changes in the fair value of our available for sale equity securities of $78,715 from cumulative other comprehensive income to cumulative net income. We also reclassified $841 from cumulative other comprehensive income to cumulative net income for our share of cumulative other comprehensive income of our equity method investee. Effective January 1, 2018, changes in the fair value of our equity securities are recorded through earnings in accordancecollectively with ASU No. 2016-01.

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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



On2016-02, the Lease Standard. We adopted the Lease Standard on January 1, 2018, we adopted FASB ASU No. 2016-18, Restricted Cash, which requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows.2019. The implementation of ASU 2016-18 resulted in an increase of $55,222 of net cash provided by operating activities and an increase of $42,563 of net cash used in investing activities for the nine months ended September 30, 2017. This update also requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. Restricted cash consisting of amounts escrowed by our hotel operators pursuant to the terms of our management agreements and leases to fund periodic renovations and improvements at our hotels totaled $65,644 and $73,115 as of September 30, 2018 and 2017, respectively. See Notes 3 and 8 for further information regarding our FF&E reserves. The adoption of this update did not change our balance sheet presentation.
In February 2016, the FASB issued ASU No. 2016-02, Leases, whichLease Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02The Lease Standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is alsoUpon adoption, we applied the package of practical expedients that allowed us not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, (iii) initial direct costs for any expired or existing leases and (iv) the option to initially apply the Lease Standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, although we did not have such an adjustment. Additionally, our leases met the criteria not to separate non-lease components from the related lease component.
As a lessor. We are required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessingAdoption of the potentialLease Standard did not have a material impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements.statements for our leases where we are the lessor.
As a lessee. We are required to record right of use assets and lease liabilities in our condensed consolidated balance sheets for leases with terms greater than 12 months, where we are the lessee. We recorded right of use assets and related lease liabilities of $77,010 upon implementation of the Lease Standard. Adoption of the Lease Standard did not have a material effect

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in our condensed consolidated statements of comprehensive income or condensed consolidated statements of cash flows for our leases where we are the lessee.
See Note 8 for further information regarding our leases and the adoption of the Lease Standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 iswill be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements.
In June 2018, Lease related receivables are governed by the FASB issuedLease Standards referred to above and are not subject to ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements2016-13. We currently expect to Nonemployee Share-Based Payment Accounting, which alignsadopt the measurement and classification guidance for share-based payments to nonemployees withstandard using the guidance for share-based payments to employees, with certain exceptions. ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2018-07 will have in our condensed consolidated financial statements.modified retrospective approach.
Note 3. Revenue Recognition
We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income. We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.
We report rental income for leased hotels and travel centersproperties in our condensed consolidated statements of comprehensive income. We recognize rental income from operating leases on a straight line basis over the term of the lease agreements. RentalWe reduced rental income includesby $3,046 and $7,368 for the three and nine months ended September 30, 2019, respectively, and increased rental income by $3,136 and $9,359 for the three and nine months ended September 30, 2018, respectively, and $3,087 and $9,208 for the three and nine months ended September 30, 2017, respectively, of adjustments necessary to record scheduled rent increaseschanges under certain of our leases, the deferred rent obligations payable to us under our leases with TravelCenters of America LLC,Inc., or 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. See Notes 8 and 10 for further information regarding our TA leases. Due from related persons includes $63,285$51,071 and $54,219$66,347 and other assets, net, includes $2,985$3,135 and $2,691$3,073 of straight line rent receivables at September 30, 20182019 and December 31, 2017,2018, respectively.
Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements. We may determine percentage rent due to us under our leases monthly, quarterly or annually, depending on the specific lease terms, and recognize it when all contingencies have beenare met and the rent is earned. We had deferred estimated percentage rent of $1,020 and $3,047 for the three and nine months ended September 30, 2019, respectively, and $978 and $2,762 for the three and nine months ended September 30, 2018, respectively, and $435 and $1,384 for the three and nine months ended September 30, 2017, respectively.

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(Unaudited)



We own all the FF&E reserve (as defined in Note 8) escrows for our hotels. We report deposits by our third partythird-party tenants into the escrow accounts as FF&E reserve income. We do not report the amounts which are escrowed as reserves established for the regular refurbishment of our hotels, or FF&E reserves, for our managed hotels as FF&E reserve income.
Note 4. Weighted Average Common Shares
The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
  (in thousands)
Weighted average common shares for basic earnings per share 164,321
 164,232
 164,294
 164,212
Effect of dilutive securities: Unvested share awards 27
 42
 38
 30
Weighted average common shares for diluted earnings per share 164,348
 164,274
 164,332
 164,242


9
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2018 2017 2018 2017
  (in thousands)
Weighted average common shares for basic earnings per share 164,232
 164,149
 164,212
 164,131
Effect of dilutive securities: Unvested share awards 42
 39
 30
 37
Weighted average common shares for diluted earnings per share 164,274
 164,188
 164,242
 164,168

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Note 5. Shareholders' Equity
Share Awards
On April 12, 2018,June 13, 2019, in accordance with our Trustee compensation arrangements, and in connection with the election of one of our Managing Trustees, we granted 3,000 of our common shares, valued at $25.07$24.67 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to the Managing Trustee who was elected as a Managing Trustee that day.
On June 14, 2018, in accordance with our Trustee compensation arrangements, we granted 3,000 of our common shares, valued at $28.44 per common share, the closing price of our common shares on Nasdaq on that day to each of our five Trustees as part of their annual compensation.
On September 13, 2018,18, 2019, we granted an aggregate of 97,000140,100 of our common shares, valued at $28.97$25.03 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of The RMR Group LLC, or RMR LLC, under our equity compensation plan.
Share Purchases
On January 1, 2018,April 5, 2019, we purchased an aggregate of 3,3941,642 of our common shares for $29.85$26.64 per common share, the closing price of our common shares on Nasdaq on December 29, 2017,that day, from a former officer of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
On September 24, 2018,July 3, 2019, we purchased an aggregate of 17,8085,041 of our common shares for $28.35$25.20 per common share, the closing price of our common shares on Nasdaq on that day, from our former officer and former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
On September 25, 2019, we purchased an aggregate of 24,293 of our common shares for $25.64 per common share, the closing price of our common shares on that day, from our officers and certain other employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Distributions
On February 22, 2018,21, 2019, we paid a regular quarterly distribution to our common shareholders of record on January 29, 201828, 2019 of $0.52$0.53 per share, or $85,460.$87,154. On May 17, 2018,16, 2019, we paid a regular quarterly distribution to our common shareholders of record on April 30, 201829, 2019 of $0.53$0.54 per share, or $87,105.$88,798. On August 16, 2018,15, 2019, we paid a regular quarterly distribution to our common shareholders of record on July 30, 201829, 2019 of $0.53$0.54 per share, or $87,113.$88,803. On October 18, 2018,17, 2019, we declared a regular quarterly distribution to our common shareholders of record on October 29, 201828, 2019 of $0.53$0.54 per share, or $87,154.$88,865. We expect to pay this amount on or about November 15, 2018.14, 2019.
Cumulative Other Comprehensive Income (Loss)Loss
Cumulative other comprehensive income (loss),loss, as of September 30, 2018,2019, represents our share of the comprehensive loss of Affiliates Insurance Company, or AIC. See Note 10 for further information regarding this investment. The following table

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(dollars in thousands, except share data)
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presents changes in the amounts we recognized in cumulative other comprehensive income (loss) by component for the three and nine months ended September 30, 2018:
  Three Months Ended September 30, 2018
  Unrealized Gain Equity in  
  (Loss) on Investment Unrealized Gain  
  Securities, net (Loss) of Investees Total
Balance at June 30, 2018 $
 $(281) $(281)
Current period other comprehensive income 
 173
 173
Balance at September 30, 2018 $
 $(108) $(108)

  Nine Months Ended September 30, 2018
  Unrealized Gain Equity in  
  (Loss) on Investment Unrealized Gain  
  Securities, net (Loss) of Investees Total
Balance at December 31, 2017 $78,715
 $643
 $79,358
Amounts reclassified from cumulative other comprehensive income to retained earnings (78,715) (841) (79,556)
Current period other comprehensive income 
 90
 90
Balance at September 30, 2018 $
 $(108) $(108)

Note 6. Indebtedness
Our principal debt obligations at September 30, 20182019 were: (1) $143,000$790,000 of outstanding borrowings under our $1,000,000 unsecured revolving credit facility; (2) our $400,000 unsecured term loan; and (3) $3,650,000$5,350,000 aggregate outstanding principal amount of senior unsecured notes. Our revolving credit facility and our term loan are governed by a credit agreement with a syndicate of institutional lenders.
We have aOur $1,000,000 revolving credit facility that is available for general business purposes, including acquisitions. OurThe maturity date of our revolving credit facility provides thatis 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 the facility for 2 additional six-month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. On May 10, 2018, we amended and restated the credit agreement governing our revolving credit facility and our term loan. As a result of the amendment, theWe are required to pay interest rate payable on borrowings under our revolving credit facility was reduced from aat the rate of LIBOR plus a premium, of 110which was 100 basis points per annum toas of September 30, 2019. We also pay a rate of LIBOR plus a premium of 100 basis points per annum. The facility fee, remained unchanged atwhich was 20 basis points per annum at September 30, 2019, on the total amount of lending commitments under thisour revolving credit facility. TheBoth the interest rate premium and the facility fee are each subject to adjustment based upon changes to our credit ratings. AlsoOn October 1, 2019, the interest rate premium and the facility fee increased to 1.20% and 0.25%, respectively, as athe result of the amendment, the stated maturity date of this facility was extended from July 15, 2018 to July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further extend the maturity date of the facility for two additional six month periods. Asour credit rating being lowered by a result of this amendment, we recognized a loss on early extinguishment of debt related to the revolving credit facility of $90 during the three months ended June 30, 2018 to write off unamortized debt issuance costs.
rating agency. As of September 30, 2018,2019, the annual interest rate payable on borrowings under our revolving credit facility was 3.09%2.92%. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.97% and 3.00% for the three and nine months ended September 30, 2018, respectively, and 2.33% and 2.17% for the three and nine months ended September 30, 2017, respectively. As of September 30, 2018, we had $143,000 outstanding and $857,000 available under our revolving credit facility. As of November 5, 2018, we had $119,000 outstanding and $881,000 available to borrow under our revolving credit facility.
As a result of the amendment to our credit agreement, the interest rate payable on borrowings under our term loan was reduced from a rate of LIBOR plus a premium of 120 basis points per annum to a rate of LIBOR plus a premium of 110 basis points per annum, subject to adjustment based upon changes to our credit ratings. Also as a result of the amendment, the stated


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maturity date3.10% and 3.34% for the three and nine months ended September 30, 2019, respectively, and 2.97% and 3.00% for the three and nine months ended September 30, 2018, respectively. As of theSeptember 30, 2019, we had $790,000 outstanding and $210,000 available under our revolving credit facility. As of November 7, 2019, we had $700,000 outstanding and $300,000 available to borrow under our revolving credit facility.
Our $400,000 term loan, was extended from April 15, 2019 towhich matures on July 15, 2023. Our term loan2023, is prepayable without penalty at any time. AsWe are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 110 basis points per annum as of September 30, 2019. The interest rate premium is subject to adjustment based on changes to our credit ratings. On October 1, 2019 the interest rate premium increased to 1.35% as a result of this amendment, we recognizedour credit rating being lowered by a loss on early extinguishment of debt related to the term loan of $70 during the three months ended June 30, 2018 to write off unamortized debt issuance costs.
rating agency. As of September 30, 2018,2019, the annual interest rate for the amount outstanding under our term loan was 3.20%. The weighted average annual interest rate for borrowings under our term loan was 3.35% and 3.51% for the three and nine months ended September 30, 2019, respectively, and 3.19% and 3.02% for the three and nine months ended September 30, 2018, respectively, and 2.43% and 2.20% for the three and nine months ended September 30, 2017, respectively.
Our credit agreement also includes a feature under which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in 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. Our credit agreement and our unsecured senior notes indentures and their supplements also contain a number of covenants, including covenantsthose that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of our credit agreement and our unsecured senior notes indentures and their supplements at September 30, 2018.2019.
On February 2, 2018,September 18, 2019, we issued $400,000$825,000 principal amount of 4.375%our 4.35% unsecured senior notes due 2030 in a public offering. Net2024, $450,000 principal amount of our 4.75% unsecured senior notes due 2026 and $425,000 principal amount of our 4.95% unsecured senior notes due 2029. The aggregate net proceeds from this offeringthese offerings were $386,400$1,680,461, after underwriting discounts and other offering expenses.
In connection with our acquisition of a 767-property net lease portfolio from Spirit MTA REIT, a Maryland real estate investment trust, or REIT, (NYSE: SMTA), or SMTA, located in 45 states, or the SMTA Transaction, a syndicate of lenders committed to provide us with a one year unsecured term loan facility, under which we would be able to borrow up to $2,000,000. We terminated these commitments in September 2019 and recorded a loss on early extinguishment of debt of $8,451 during the three months ended September 30, 2019 to write off unamortized issuance costs. See Note 7 for further information about the SMTA Transaction.
Note 7. Real Estate Properties
At September 30, 2018,2019, we owned 325328 hotels with 51,086 rooms or suites and 199 travel centers.946 service-oriented retail properties with approximately 17.6 million square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term. Our properties had an aggregate undepreciated carrying value of $11,905,525, including $604,989 classified as held for sale as of September 30, 2019.
During the nine months ended September 30, 2018,2019, we funded $118,733$123,190 for improvements to certain of our properties which, pursuant to the terms of our management and lease agreements with our hotel managers and tenants, resulted in increases in our contractual annual minimum returns and rents of $8,608.$9,097. See NotesNote 8 and 10 for further information about our management and lease agreements and our fundings of improvements to certain of our properties.

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Acquisitions
DuringWe completed the SMTA Transaction and acquired 2 hotels and a land parcel during the nine months ended September 30, 2018, we acquired two hotels.2019. We accounted for these transactions as acquisitions of assets. Our allocation of the purchase price of each of these acquisitions based on the estimated fair value of the acquired assets and assumed liabilities is presented in the table below.
Acquisition Date Location Purchase Price Land Land Improvements Building and Improvements Furniture, Fixtures and Equipment
6/15/2018 
Minneapolis, MN (1)
 75,572
 $2,196
 $
 $68,384
 $4,992
6/15/2018 
Baton Rouge, LA (2)
 16,022
 2,242
 173
 12,842
 765
    $91,594
 $4,438
 $173
 $81,226
 $5,757
Acquisition Date Location Purchase Price Land Land Improvements Building and Improvements Furniture, Fixtures and Equipment Held for Sale Intangible Assets / Liabilities, net
2/22/2019 
Washington, D.C. (1)
 $143,742
 $44,972
 $151
 $93,412
 $5,207
 $
 $
5/7/2019 
Milwaukee, WI (2)
 30,235
 3,442
 1,053
 25,132
 608
 
 
8/1/2019 
Southington, CT (3)
 66
 66
 
 
 
 
 
9/20/2019 
Various (4)
 2,482,382
 388,057
 
 1,201,922
 
 604,989
 287,414
    $2,656,425
 $436,537
 $1,204
 $1,320,466
 $5,815
 $604,989
 $287,414
(1)
On June 15, 2018,February 22, 2019, we acquired the 360335 room Radisson Blu® hotelHotel Palomar located in Minneapolis, MNWashington, D.C. for a purchase price of $75,572,$143,742, including capitalized acquisition costs of $572.$2,292. We added this hotel to our management agreement with Radisson Hospitality, Inc., or Radisson.
(2)
On June 15, 2018, we acquired the 117 suite Staybridge SuitesKimpton® at Louisiana State University in Baton Rouge, LA for a purchase price of $16,022 including capitalized acquisition costs of $272. We added this branded hotel to our management agreement with InterContinental Hotels Group, plc, or InterContinental.IHG. See Note 8 for further information regarding our management agreement with IHG for 102 hotels, or our IHG agreement.
(2)
On May 7, 2019, we acquired the 198 room Crowne Plaza Milwaukee West hotel in Milwaukee, WI for a purchase price of $30,235, including capitalized acquisition costs of $235. We added this Crowne Plaza® branded hotel to our management agreement with IHG. See Note 8 for further information regarding our IHG agreement.
(3)On August 1, 2019, we acquired a land parcel adjacent to our travel center located in Southington, CT for a purchase price of $66, including capitalized acquisition costs of $6. This land parcel has been added to the TA lease for that travel center.
(4)
On September 20, 2019, we completed the SMTA Transaction for total consideration of $2,482,382. See below for further information regarding the SMTA Transaction. As of September 30, 2019, 148assets included in the SMTA Transaction with a carrying value of $604,989 were classified as held for sale.
SeeOn September 20, 2019, we completed the SMTA Transaction as a result of which, we acquired 767 net lease service-oriented retail properties with 12.4 million rentable square feet. The aggregate transaction value of the SMTA Transaction was $2,482,382, including $2,384,577 in cash consideration, $82,069 of prepayment penalties related to SMTA’s extinguishment of the mortgage debt on the portfolio and $15,736 of other capitalized acquisition costs. The properties included in the portfolio are net leased to 279 tenants operating in 23 distinct industries and 163 brands that include 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. We financed the SMTA Transaction with borrowings under our revolving credit facility and with cash on hand, including net proceeds from our public offerings of senior unsecured notes, as described further in Note 8 for further information regarding our Radisson and InterContinental agreements.6. As of September 30, 2019, we had $5,900 of unspent leasing-related obligations assumed as a part of the SMTA Transaction.
On October 30, 2018,9, 2019, we acquired a hotel with 164 suitesthe 261-room Kimpton Palomar Hotel located in Scottsdale, AZChicago, IL for a purchase price of $35,885,$55,000, excluding acquisition related costs. In connection withWe added this acquisition, we converted thisKimpton® branded hotel to our management agreement with IHG.
Dispositions
In January 2019, in a series of transactions, we sold 20 travel centers in 15 states to TA for $308,200. We recorded a gain of $159,535 in the Sonesta Suites® brandfirst quarter of 2019 as a result of these sales. See Notes 8 and added it10 for further information regarding these transactions, our relationship and agreements with TA.

On October 11, 2019, we entered an agreement to sell 126 net lease properties we acquired in the SMTA Transaction with approximately 2.4 million square feet in 26 states with an aggregate of $34,300 of annual minimum rents as of September 30, 2019 for an aggregate sales price of $438,000, excluding closing costs. We expect this sale to be completed prior to December 31, 2019.
On October 22, 2019, we sold a net lease property we acquired in the SMTA Transaction in Hermantown, MN with 103,631 square feet with annual minimum rent of $913 as of September 30, 2019 for $6,250, excluding closing costs.

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to our management agreementOn October 29, 2019, we sold a net lease office property we acquired in the SMTA Transaction in Las Vegas, NV with Sonesta International Hotels Corporation, or Sonesta. See Notes 8 and 10138,558 square feet with annual minimum rent of $3,561 as of September 30, 2019 for further information regarding our Sonesta agreement.$57,000, excluding closing costs.
Note 8. Management Agreements and Leases
As of September 30, 2018,2019, we owned 325328 hotels and 199 travel centers, which were included in 138 operating agreements.agreements and 946 service orientated retail properties net leased to 279 tenants. We do not operate any of our properties.
Hotel agreements
As of September 30, 2018, 3232019, 326 of our hotels were leased to our TRSs and managed by independent hotel operating companies and two2 hotels were leased to third parties. As of September 30, 2018,2019, our hotel properties were managed by or leased to separate subsidiaries of Marriott International, Inc., or Marriott, InterContinental,IHG, Sonesta International Hotels Corporation, or Sonesta, Wyndham Hotels & Resorts, Inc., or Wyndham, Hyatt Hotels Corporation, or Hyatt, and Radisson Hospitality, Inc., or Radisson, under eight8 agreements. These hotel agreements have initial terms expiring between 2019 and 2038. Each of these agreements is for between one1 and 100102 of our hotels. In general, the agreements contain renewal options for all, but not less than all, of the affected properties included in each agreement, and the renewal terms range between 20 to 60 years. Most of these agreements require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents; (2) deposit a percentage of total hotel sales into reserves established for the regular refurbishment of our hotels, or FF&E reserves; and (3) for our managed hotels, make payments to our TRSs of additional returns to the extent of available cash flows after payment of operating expenses, funding of the FF&E reserves, payment of our minimum returns, payment of certain management fees and replenishment of security deposits or guarantees. Some of our managers or tenants or their affiliates have provided deposits or guarantees to secure their obligations to pay us.
Marriott No. 1 agreement. Our management agreement with Marriott for 53 hotels, or our Marriott No. 1 agreement, provides that, as of September 30, 2018,2019, we are to be paid an annual minimum return of $69,409$71,714 to the extent that gross revenues of the hotels, after payment of hotel operating expenses and funding of the FF&E reserve, are sufficient to do so. Marriott’s base and incentive management fees are only earned after we receive our minimum returns. We realized minimum returns of $17,335$17,908 and $17,247$17,335 during the three months ended September 30, 20182019 and 2017,2018, respectively, and minimum returns of $51,954$53,467 and $51,657$51,954 during the nine months ended September 30, 20182019 and 2017,2018, respectively, under this agreement. We also realized additional returns of $1,985 and $3,560 during the three and nine months ended September 30, 2019, respectively, and $2,584 and $5,113 during the three and nine months ended September 30, 2018, and $3,603 and $6,807 during the three and nine months ended September 30, 2017, respectively, which represent our share of hotel cash flows in excess of the minimum returns due to us for these periods. We do not have any security deposits or guarantees for our minimum returns from the 53 hotels included in our Marriott No. 1 agreement. Accordingly, the minimum returns we receive from these hotels managed by Marriott are limited to the hotels'hotels’ available cash flows after payment of operating expenses and funding of the FF&E reserve.
We funded $15,778 and $1,769 for capital improvements to certain of the hotels included in our Marriott No. 1 agreement during the nine months ended September 30, 2018. We currently expect to fund approximately $8,200 for capital improvements to certain hotels under2019 and 2018, respectively, which resulted in increases in our Marriott No. 1 agreement during the last three months of 2018. As we fund these improvements, thecontractual annual minimum returns payable to us increase by 10% of the amounts funded.$1,578 and $177, respectively.
Marriott No. 234 agreement. Our management agreement with Marriott for 68 hotels, or our Marriott No. 234 agreement, provides that, as of September 30, 2018,2019, we are to be paid an annual minimum return of $107,110.$109,024. We realized minimum returns of $26,772$27,256 and $26,591$26,772 during the three months ended September 30, 20182019 and 2017,2018, respectively, and $80,199$81,206 and $79,771$80,199 during the nine months ended September 30, 20182019 and 2017,2018, respectively, under this agreement. Pursuant to our Marriott No. 234 agreement, Marriott has provided us with a security deposit to cover minimum return payment shortfalls, if any. Under this agreement, this security deposit may be replenished and increased up to $64,700 from a share of hotel cash flows in excess of the minimum returns due to us. Marriott’s base and incentive management fees are only earned after we receive our minimum returns. During the nine months ended September 30, 2018,2019, our available security deposit was replenished by $7,686$3,910 from a share of hotel cash flows in excess of the minimum returns due to us during the period. The available balance of this security deposit was $33,657$36,621 as of September 30, 2018.2019. Pursuant to our Marriott No. 234 agreement, Marriott has also provided us with a limited guaranteeguaranty which expires in 2019 for shortfalls up to 90% of our minimum returns, if and after the available security deposit has been depleted. The available balance of the guaranteeguaranty was $30,672 as of September 30, 2018.2019.

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We funded $18,600 and $6,355 for capital improvements to certain of the hotels included in our Marriott No. 234 agreement during the nine months ended September 30, 2018. We currently expect to fund approximately $1,200 for capital improvements to certain

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hotels underincreases in our Marriott No. 234 agreement during the last three months of 2018. As we fund these improvements, thecontractual annual minimum returns payable to us increase by 9% of the amounts funded.$1,674 and $572, respectively.
Marriott No. 5 agreement. We lease one1 hotel in Kauai, HI to Marriott which requires that, as of September 30, 2018,2019, we are paid annual minimum rents of $10,321.$10,518. This lease is guaranteed by Marriott and we realized $2,580$2,630 and $2,540$2,580 of rent for this hotel during the three months ended September 30, 20182019 and 2017,2018, respectively, and $7,740$7,889 and $7,620$7,740 during the nine months ended September 30, 20182019 and 2017,2018, respectively. The guaranteeguaranty provided by Marriott with respect to this leased hotel is unlimited. Marriott has four4 renewal options for 15 years each. On August 31, 2016, Marriott notified us that it will not exercise its renewal option at the expiration of the current lease term ending on December 31, 2019.
InterContinentalIHG agreement. Our management agreement with InterContinental for 100 hotels, or our InterContinentalIHG agreement provides that, as of September 30, 2018,2019, we are to be paid annual minimum returns and rents of $190,521.$207,411. We realized minimum returns and rents of $47,630$51,853 and $46,404$47,630 during the three months ended September 30, 20182019 and 2017,2018, respectively, and $142,316$153,053 and $131,649$142,316 during the nine months ended September 30, 20182019 and 2017,2018, respectively, under this agreement. We also realized additional returns under this agreement of $6,653 and $8,264$8,373 during the three months ended September 30, 2018 and 2017, respectively, and $8,373 and $11,836 during the nine months ended September 30, 2018 and 2017, respectively, from our share of hotel cash flows in excess of the minimum returns and rents due to us for that period. We did 0t realize any additional returns during either the three or nine months ended September 30, 2019.
Pursuant to our InterContinentalIHG agreement, InterContinentalIHG has provided us with a security deposit to cover minimum payment shortfalls, if any. Under this agreement, InterContinentalIHG is required to maintain a minimum security deposit of $37,000 and this security deposit may be replenished and increased up to $100,000 from a share of future cash flows from the hotels in excess of our minimum returns and rents. During the nine months ended September 30, 2019, we reduced the available security deposit by $14,259 to cover shortfalls in hotel cash flows available to pay the minimum returns and rents due to us for the period. The available balance of the InterContinentalthis security deposit remained at the maximum contractual amount of $100,000was $85,741 as of September 30, 2018.2019.
We did not0t fund any capital improvements to our InterContinentalIHG hotels during each of the nine months ended September 30, 2018. We currently expect to fund approximately $44,600 during the last three months of 20182019 and approximately $56,200 during 2019 for capital improvements to certain hotels under our InterContinental2018.
Sonesta agreement. As we fund these improvements, the annual minimum returns and rents payable to us increase by 8% of the amounts funded.
Sonesta agreement.As of September 30, 2018,2019, Sonesta managed 1112 of our full service hotels and 39 of our limited service hotels pursuant to management agreements for each of the hotels, which we refer to collectively as our Sonesta agreement, and a pooling agreement, which combines those management agreements for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us.
Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, which was $123,180 as of September 30, 2018, if gross revenues of the hotels, after payment of hotel operating expenses and management and related fees (other than Sonesta’s incentive fee, if applicable), are sufficient to do so. Our fixed annual minimum return under our Sonesta agreement was $131,229 as of September 30, 2019. Our Sonesta agreement further provides that we are paid an additional return based upon operating profits, as defined therein, after payment of Sonesta’s incentive fee, if applicable. We realized returns of $15,629 and $21,732 during the three months ended September 30, 2019 and 2018, respectively, and $57,794 and $61,606 during the nine months ended September 30, 2019, and 2018, respectively, under our Sonesta agreement. We do not have any security deposits or guarantees for our hotels managed by Sonesta.Sonesta hotels. Accordingly, the returns we receive from our Sonesta hotels managed by Sonesta are limited to the hotels’ available cash flows after payment of operating expenses, including management and related fees. We realized returns of $21,732 and $18,741 during the three months ended September 30, 2018 and 2017, respectively, and $61,606 and $53,808 during the nine months ended September 30, 2018 and 2017, respectively, under our Sonesta agreement.
Pursuant to our Sonesta agreement, we recognizedincurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third party reservation transmission fees payable to Sonesta of $9,437$9,313 and $7,432$9,437 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $26,245$28,016 and $20,719$26,245 for the nine months ended September 30, 20182019 and 2017,2018, respectively. In addition, we recognizedincurred procurement and construction supervision fees payable to Sonesta of $713$928 and $479$713 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $1,907$1,914 and $673$1,907 for the nine months ended September 30, 20182019 and 2017,2018, respectively, pursuant to our Sonesta agreement. These amounts are included in hotel operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.
Our Sonesta agreement does not require FF&E escrow deposits, but does require us to fund capital expenditures that we approve at our hotels managed by Sonesta.Sonesta hotels. We funded $64,032$67,495 and $21,892$64,032 for renovations and other capital improvements to certain hotels included in our Sonesta agreement during the nine months ended September��September 30, 2018,2019 and 2017,2018, respectively, which resulted in increases in our contractual annual minimum returns of $4,140 and $3,948, and $742, respectively. We currently expect to

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fund approximately $26,900 during the last three months of 2018 and approximately $79,100 during 2019 for renovations and other capital improvements to certain of our hotels managed by Sonesta. The annual minimum returns due to us under theour Sonesta agreement increase by 8% of the capital expenditure amounts we fund in excess of threshold amounts, as defined

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therein. We owed Sonesta $6,735$14,879 and $5,685$6,735 for capital expenditure and other reimbursements at September 30, 20182019 and 2017,2018, respectively. Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets.
See Notes 7 andNote 10 for further information regarding our transactionsrelationship, agreements and relationshiptransactions with Sonesta.
Morgans agreement.  Prior to May 8, 2018, we leased The Clift Hotel in San Francisco, CA to Morgans Hotel Group, or Morgans. This lease was scheduled to expire in 2103 and required annual rent to us of $7,595. During the period of January 1, 2018 through May 8, 2018, all contractual rent due to us under the Morgans lease was paid to us. On May 8, 2018, pursuant to a settlement agreement with Morgans and SBE Entertainment Group, LLC, our Morgans lease was terminated and Morgans surrendered possession of the hotel to us. We rebranded this hotel to the Royal Sonesta® brand and added it to our management agreement with Sonesta. The terms of the management agreement are consistent with the terms of our other management agreements with Sonesta for full service hotels.
Wyndham agreements. Our management agreement with Wyndham for 22 hotels, or our Wyndham agreement, provides that, as of September 30, 2018,2019, we are to be paid annual minimum returns of $27,677.$27,973. Pursuant to our Wyndham agreement, Wyndham has provided us with a guarantee,guaranty, which was limited to $35,656, subject to an annual payment limit of $17,828, and expires on July 28, 2020. This guaranteeguaranty was depleted during 2017 and remained depleted as of September 30, 2018.2019. This guaranty may be replenished from a share of future cash flows from these hotels in excess of our minimum returns. TheTo avoid default, Wyndham agreement provides that if the hotel cash flows available after paymentwas required to pay 85% of hotel operating expenses are less than the minimum returns due to usus. We realized returns of $5,944 and if the guaranty is depleted, to avoid a default Wyndham is required to pay us the greater of the available hotel cash flows after payment of hotel operating expenses and 85% of the contractual amount due to us. During$5,869 during the three months ended September 30, 2019 and 2018, respectively, and $17,780 and $17,588 during the nine months ended September 30, 2018, we realized returns of $5,8692019 and $17,588,2018, respectively, which represents 85% of the minimum returns due for the period, under this agreement. During the three and nine months ended September 30, 2017, we realized returns of $6,847 and $20,489, respectively, under this agreement.
Our Wyndham agreement requires FF&E escrow deposits equal to 5% of total hotel sales for all hotels included in the agreement subject to available cash flows after payment of our minimum return. NoNaN FF&E escrow deposits were made during the nine months ended September 30, 2018.
2019. We funded $2,283 and $1,449 for capital improvements to certain of the hotels included in our Wyndham agreement during the nine months ended September 30, 2018. We currently expect to fund approximately $6,600 for capital improvements to certain hotels under2019 and 2018, respectively, which resulted in increases in our Wyndham agreement during the last three months of 2018. As we fund these improvements, thecontractual annual minimum returns payable to us increase by 8%of $183 and $116, respectively.
In October 2019, we amended our agreement with Wyndham whereby the term of the amounts funded.management agreement will expire on September 30, 2020 unless sooner terminated with respect to any hotels that are sold or rebranded. Under the amendment, Wyndham will pay us all cash flows of the hotels after payment of hotel operating costs. Wyndham will not be entitled to any base management fees for the remainder of the agreement term.
We also lease 48 vacation units in one1 of our hotels to a subsidiary of Wyndham Destinations, Inc. (NYSE: WYND), or Destinations, which requires that, as of September 30, 2018,2019, we are paid annual minimum rents of $1,449.$1,493. The guaranty provided by Destinations with respect to the Destinations lease for part of one1 hotel is unlimited. We recognized the contractual rents of $454 during both the three months ended September 30, 20182019 and 20172018 and $1,361 during each of the nine months ended September 30, 20182019 and 20172018 under our Destinations lease agreement. Our lease with Destinations for 48 vacation units is subject to termination in the event of a manager default under our Wyndham agreement. Rental income for the three months ended September 30, 20182019 and 20172018 for this lease includes $91$80 and $102,$91, respectively, and $273$241 and $306$273 for the nine months ended September 30, 20182019 and 2017,2018, respectively, of adjustments necessary to record rent on a straight line basis.

On November 1, 2019, we rebranded two full-service hotels previously managed by Wyndham (Chicago, IL and Irvine, CA) to the Sonesta brands under a short term agreement with Sonesta that expires on December 31, 2020. We have amended the lease of the 48 vacation units at the Chicago hotel to Destinations so the term of the lease expires on March 31, 2020, at which time Destinations will vacate the leased space.
Hyatt agreement. agreement. Our management agreement with Hyatt for 22 hotels, or our Hyatt agreement, provides that, as of September 30, 2018,2019, we are to be paid an annual minimum return of $22,037. We realized minimum returns of $5,509 during each of the three months ended September 30, 20182019 and 20172018 and minimum returns of $16,528 during each of the nine months ended September 30, 20182019 and 20172018 under this agreement. Pursuant to our Hyatt agreement, Hyatt has provided us with a guarantee,guaranty, which is limited to $50,000. During the nine months ended September 30, 2018,2019, the available guarantee was replenished by $2,415 from a share of hotelhotels under this agreement generated cash flows in excess ofthat were less than the minimum returns due to us.us for the period, and Hyatt made $569 of guaranty payments to cover the shortfall. The available balance of the guaranteeguaranty was $23,521$21,346 as of September 30, 2018.2019.

Radisson agreement. Our management agreement with Radisson for 9 hotels, or our Radisson agreement, provides that, as of September 30, 2019, we are to be paid an annual minimum return of $20,442. We realized minimum returns of $5,099 and $4,730 during the three months ended September 30, 2019 and 2018, respectively, and $14,945 and $11,453 during the nine months ended September 30, 2019 and 2018, respectively, under this agreement. Pursuant to our Radisson agreement, Radisson has provided us with a limited guaranty which, as a result of capital improvement amounts funded by us during the nine months ended September 30, 2019, as described below, was increased $1,523 to a total of $47,523. During the nine months ended September 30, 2019, the hotels under this agreement generated cash flows that were less than the minimum returns due to us for the period, and Radisson made $93 of guaranty payments to cover the shortfall. The available balance of the guaranty was $42,466 as of September 30, 2019.

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Radisson agreement. Our management agreement with Radisson for nine hotels, or our Radisson agreement, provides that, as of September 30, 2018, we are to be paid an annual minimum return of $18,920. We realized minimum returns of $4,730 and $3,230 during the three months ended September 30, 2018 and 2017, respectively, and $11,453 and $9,690 during the nine months ended September 30, 2018 and 2017, respectively, under this agreement. In connection with our acquisition of the Radisson Blu® hotel described in Note 7, the available balance of the guaranty under our Radisson agreement was increased by $6,000 and the guaranty cap was increased to $46,000. During the nine months ended September 30, 2018, our available guarantee was replenished by $4,199 from a share of hotel cash flows in excess of the minimum returns due to us. The available balance of the guarantee was $43,563 as of September 30, 2018.
We did not fund anyfunded $19,034 for capital improvement costsimprovements at certain of the hotels included in our Radisson agreement during the nine months ended September 30, 2018.2019, which resulted in increases in our contractual annual minimum returns of $1,523. We currently expect todid 0t fund approximately $2,800 during the last three months of 2018 and approximately $32,200 during 2019 forany capital improvements to certainthe hotels under our Radisson agreement.  Our annual minimum returns, the available balance of the guaranty and the limited guaranty cap underincluded in our Radisson agreement will increase by 8% of any amounts we fund.during the nine months ended September 30, 2018.
TA leases. Net lease portfolio
As of September 30, 2018,2019, we owned 946 net lease service-oriented retail properties with 17.6 million square feet with annual minimum rent of $418,635 with a weighted (by annual minimum rents) average lease term of 11.3 years. The portfolio was 98% leased by 279 tenants operating under 163 brands in 23 distinct industries. As of September 30, 2019, 148 properties we acquired in the SMTA Transaction with 3.2 million square feet with annual minimum rent of $43,081 and a carrying value of $604,989 were classified as held for sale.
TA Leases
In January 2019, we entered agreements with TA, pursuant to which:
In January 2019, we sold to TA 20 travel center properties, which TA previously leased from us, for a total purchase price of $308,200.
Upon completing these sales, these travel center properties were removed from the TA leases and TA’s annual minimum rent payable to us decreased by $43,148.
Commencing on April 1, 2019, TA paid us the first of 16 quarterly installments of approximately $4,400 each (an aggregate of $70,458) to fully satisfy and discharge its $150,000 deferred rent obligation to us that otherwise would have become due in five installments between 2024 and 2030. TA paid to us $4,400 and $8,800 in respect of such obligation for the three and nine months ended September 30, 2019, respectively.
Commencing with the year ending December 31, 2020, TA will be obligated to pay to us an additional amount of percentage rent equal to one-half percent (0.5%) of the excess of its annual non-fuel revenues at leased sites over the non-fuel revenues for each respective site for the year ending December 31, 2019.
The term of each TA lease was extended by three years.
Certain of the travel center properties that we did not sell to TA and that TA continued to lease from us were reallocated among the TA leases.
See Note 7 for further information regarding the effects of certain of our property dispositions on our leases with TA.
TA is our largest tenant. As of September 30, 2019, we leased to TA a total of 199179 travel centers under five leases.5 leases that expire between 2029 and 2035 and require annual minimum returns of $246,088 which represents approximately 24.1% of our total annual minimum rents as of September 30, 2019.
We recognized rental income from TA of $74,797$62,537 and $73,279$74,797 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $223,458$188,227 and $217,420$223,458 for the nine months ended September 30, 2019 and 2018, respectively. We reduced rental income by $3,390 and 2017, respectively. Rental income$7,880 for the three and nine months ended September 30, 20182019, respectively, and 2017 includesincreased rental income by $3,037 and $2,988, respectively, and $9,066 and $8,907 for the three and nine months ended September 30, 2018, and 2017, respectively, of adjustments to record the deferred rent obligations under our TA leases and the estimated future payments to us by TA for the cost of removing underground storage tanks on a straight line basis. As of September 30, 20182019 and December 31, 2017,2018, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $88,164$72,587 and $78,513,$91,212, respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets.
On October 14, 2019, we and TA amended the five TA Leases, pursuant to which, among other things, certain of the 179 travel center properties that we lease to TA were reallocated among the TA Leases. As part of these amendments, we removed TA’s outstanding deferred rent obligations from the lease we refer to as our TA Lease No. 5 agreement for 35 travel centers, which expires in June 2035, and reallocated that amount to our other four TA leases. These amendments were entered into as part of our exploration of possible secured debt and joint venture financing with respect to the 35 properties subject to this lease.

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Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non-structural components.
Under our TA leases, TA may request that we fund capital improvements in return for increases in TA’s annual minimum rent equal to 8.5% of the amounts funded. We did 0t fund any capital improvements to our properties that we leased to TA during the nine months ended September 30, 2019. We funded $44,653 and $62,888of capital improvements to our properties that we leased to TA for the nine months ended September 30, 2018 and 2017, respectively, of capital improvements to our TA leases.2018. As a result, TA’s annual minimum rent payable to us increased by $3,795 and $5,345, respectively. We currently expect to fund approximately $13,600 for renovations and other capital improvements to our travel centers during the last three months of 2018. TA is not obligated to request and we are not obligated to fund any such improvements.$3,795.
In addition to the rental income that we recognized during the three months ended September 30, 20182019 and 20172018 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales. We determine percentage rent due under our TA leases annually and recognize any resulting amount as rental income when all contingencies are met. We had aggregate deferred percentage rent under our TA leases of $934$1,020 and $435$934 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $2,630$3,047 and $1,384$2,630 for the nine months ended September 30, 20182019 and 2017,2018, respectively.
See Note 10 for further information regarding our relationship with TA.
Other net lease agreements
We recognized rental income from the net lease properties we acquired under the SMTA Transaction of $5,485 for both the three and nine months ended September 30, 2019. We increased rental income by $258 for the three and nine months ended September 30, 2019 to record scheduled rent changes under certain of our leases on a straight line basis.
Additional lease information (as lessor). As of September 30, 2019, our leases with parties other than our TRSs provide for contractual minimum rents to be paid to us during the remaining current terms as follows:
2019$184,600
2020440,093
2021436,348
2022428,645
2023412,430
Thereafter3,260,594
Total$5,162,710

Additional lease information (as lessee). As of January 1, 2019, 14 of our hotels and 1 of our net lease portfolio locations were subject to ground leases where we are the lessee. In addition, our hotel operators enter various leases on our behalf in the normal course of business at our hotels, or our hotel operating leases. We calculated right of use assets and lease liabilities as the present value of the remaining lease payment obligations for our operating leases, which include the ground leases and hotel operating leases, over the remaining lease term using our estimated incremental borrowing rate. The right of use assets and related lease liabilities are included within other assets, net and accounts payable and other liabilities, respectively, in our condensed consolidated balance sheets.

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At September 30, 2019, our right of use assets and related lease liabilities totaled $75,746 and $76,224, respectively, which represented our future obligations under our operating lease agreements. Our operating leases require minimum fixed rent payments, percentage rent payments based on a percentage of hotel revenues in excess of certain thresholds, or rent payments equal to the greater of a minimum fixed rent or percentage rent. Rental expense related to our operating leases of $3,601 and $10,594 for the three and nine months ended September 30, 2019, respectively, is included in hotel operating expenses within our condensed consolidated statements of comprehensive income. As of September 30, 2019, our operating leases provide for contractual minimum rent payments to third parties during the remaining lease terms, as follows:
2019$1,841
20206,910
20216,229
20225,691
20235,564
Thereafter145,374
Total lease payments171,609
Less: imputed interest(95,385)
Present value of lease liabilities (1)
$76,224
(1)The weighted average discount rate used to calculate the lease liability and the weighted average remaining term for our ground leases (assuming all extension options) and our hotel operating leases are approximately 5.45% and 31 years (range of 12 to 68 years) and 5.47% and 30 years (range of 1 month to 54 years), respectively.
As of September 30, 2019, 15 of our net lease properties are on land we leased partially or entirely from unrelated third parties. We are not required to record right of use assets and lease liabilities for these properties as we are not the primary obligor under the leases. The average remaining term of these 15 ground leases was 14 years (range of two to 31 years) with rents averaging $419 per year.
Generally, payments of ground lease obligations are made by our managers or tenants. However, if a manager or tenant did not perform obligations under a ground lease or did not renew any ground lease, we might have to perform obligations under the ground lease or renew the ground lease in order to protect our investment in the affected property.
Guarantees and security deposits generally. When we reduce the amounts of the security deposits we hold for any of our operating agreements for payment deficiencies, at our managed and leased hotels, we record income equal to the amounts by which this deposit is reduced up to the minimum return or minimum rent due to us. However, reducing the security depositsit does not result in additional cash flows to us of the deficiency amounts, but reducing amounts of security deposits may reducereduces the refunds due to the respective tenants or managers who have provided us with these security deposits upon expiration of the respective lease or managementapplicable operating agreement. The security deposits are non-interest bearing and are not held in escrow. Under these agreements, any amount of the security deposits which are applied to payment deficits may be replenished from a share of future cash flows from the applicable hotel operations pursuant to the terms of the respectiveapplicable agreements.
Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $9,216$19,631 and $5,699$9,216 less than the minimum returns due to us for the three months ended September 30, 20182019 and 2017,2018, respectively, and $31,030$54,112 and $18,971$31,030 less than the minimum returns due to us for the nine months ended September 30, 20182019 and 2017,2018, respectively. When

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managers of these hotels are required to fund the shortfalls under the terms of our management agreements or their guarantees, we reflect such fundings (including security deposit applications) in our condensed consolidated statements of comprehensive income as a reduction of hotel operating expenses. The reduction toWe reduced hotel operating expenses wasby $3,630 and $299 for the three months ended September 30, 2019 and 2018, respectively, and $17,166 and $2,377 and $2,689 for the nine months ended September 30, 2019 and 2018, and 2017, respectively. There was no reduction to hotel operating expenses for the three months ended September 30, 2017. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our management agreements of $17,758 and $9,818 for the three months ended September 30, 2019 and 2018, respectively, and $41,555 and $28,653 for the three and nine months ended September 30, 2019 and 2018, respectively, which represent the unguaranteed portions of our minimum returns from our Sonesta and Wyndham agreements. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our management agreements of $5,699 and $16,282 for the three and nine months ended September 30, 2017, which represents the unguaranteed portion of our minimum returns from our Sonesta agreement.
Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $21,321$9,076 and $31,355$21,321 more than the minimum returns due to us for the three months ended September 30, 20182019 and 2017,2018, respectively, and $47,901$16,966 and $67,052$47,901 more than the minimum returns due to us for the nine months ended September 30, 20182019 and 2017,2018, respectively. Certain of our guarantees and our security deposits may be replenished by a share of future cash flows from the applicable hotel

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operations in excess of the minimum returns due to us pursuant to the terms of the respective 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. We had $3,631 and $5,204 and $10,099 of guaranteeguaranty and security deposit replenishments for the three months ended September 30, 20182019 and 2017,2018, respectively, and $3,910 and $14,299 and $26,319 of guaranteeguaranty and security deposit replenishments for the nine months ended September 30, 20182019 and 2017,2018, respectively.
Note 9. Business and Property Management Agreements with RMR LLC
We have no0 employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two2 agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally,generally; and (2) a property management agreement, which currently relates to our property level operations of the office building component of one of our hotels.hotels for the periods presented and, beginning on September 20, 2019, also includes the 767 properties we acquired pursuant to the SMTA Transaction.
Pursuant to our business management agreement, with RMR LLC, we recognized net business management fees of $10,430$9,919 and $10,865$10,430 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $30,048$29,307 and $68,526$30,048 for the nine months ended September 30, 20182019 and 2017,2018, respectively. Based on our common share total return, as defined in our business management agreement, as of September 30, 2018,2019, no 2018 incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2018.2019. The actual amount of annual incentive fees for 2018,2019, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, 2018,2019, and will be payable in 2019.2020. The net business management fees we recognized for the three and nine months ended September 30, 2017 included $873 and $38,243, respectively, of then2018 did not include any estimated 2017 incentive fees; infees. In January 2018,2019, we paid RMR LLC an incentive fee of $74,573$53,635 for 2017. These2018. We include business management fee amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income.
Pursuant to our property management agreement with RMR LLC, we recognized property management fees of $18$163 and $12$18 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $43$201 and $33$43 for the nine months ended September 30, 2019 and 2018, and 2017, respectively. These fees are payable in connection with the management of the office building component of one of our hotels. These amounts are included in hotelother operating expenses in our condensed consolidated statements of comprehensive income.
We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We reimbursedare generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC $56 and $40 foremployees assigned to work exclusively or partly at the properties that are subject to the property management agreement, our share of the wages, benefits and other related expenses related to the office building componentcosts of one of our hotels for the three months ended September 30, 2018 and 2017, respectively, and $167 and $131 for the nine months ended September 30, 2018 and 2017, respectively, which amounts are included in hotel operating expenses in our condensed consolidated statements of comprehensive income. In addition, we are responsible forRMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function. The amounts recognizedfunction, and as expenseotherwise agreed. We reimbursed RMR LLC $136 and $106 for internal auditthese expenses and costs were $49 and $67 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $173$478 and $202$340 for the nine months ended September 30, 2019 and 2018, respectively. We included these amounts in other operating expenses and 2017, respectively. These amounts are included inselling, general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income for these periods.income.


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(dollars in thousands, except share data)
(Unaudited)



Note 10. Related Person Transactions
We have relationships and historical and continuing transactions with TA, Sonesta, RMR LLC, The RMR Group Inc., or RMR Inc., AIC and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors andor officers who are also our Trustees or officers. Mr. Mark L. Kleifges, our Chief Financial Officer and Treasurer, has announced his retirement from his positions with us effective December 31, 2018.
TA. TA is our largest tenant and property operator, leasing 34%26.6% of our gross carrying value of real estate properties as of September 30, 2018.2019. We lease all179 of our travel centers to TA under the TA leases. We are also TA’s largest shareholder; as of September 30, 2018,2019, we owned 3,420,000684,000 common shares of TA, representing approximately 8.6%8.5% of TA’s outstanding common shares. RMR LLC provides management services to both us and TA, and Adam D. Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, also serves as the chair of the board of directors and as a managing director of TA. As of October 10, 2018,September 30, 2019, RMR LLC owned 298,538 common shares of TA, representing approximately 3.8%3.7% of TA'sTA’s outstanding common shares. Share amounts as of September 30, 2019 reflect a one-for-five reverse stock split completed by TA on August 1, 2019. See Note 8 for further information regarding our relationships, agreements and transactions with TA and Note 13 for further information regarding our investment in TA.

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(Unaudited)



Sonesta.Sonesta is a private company owned in part by Adam D.Portnoy. Mr. Portnoy, oneour other Managing Trustee, President and Chief Executive Officer, and our Secretary are directors of our Managing Trustees.Sonesta. As of September 30, 2018,2019, Sonesta managed 5051 of our hotels pursuant to management and pooling agreements. See Note 8 for further information regarding our relationships, agreements and transactions with Sonesta.

Our Manager, RMR LLC. We have two2 agreements with RMR LLC to provide management services to us. See Note 9 for further information regarding our management agreements with RMR LLC.
We have historically grantedSee Note 5 for information relating to the annual share awards we made in September 2019 to our officers and other RMR LLC employees under our equity compensation plans. In September 2018 and 2017, we granted annual awards of 97,000 and 85,000 of our common shares, respectively, to our officers andcertain other employees of RMR LLC. In September 2018LLC and 2017,common shares we purchased 17,808from our current and 18,559former officers and certain other employees of our common shares, respectively, valued at the closing price of our common shares on Nasdaq on the applicable date of purchaseRMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to certain of our officers and other employees of RMR LLC.them. We include the amounts recognized as expense for share awards to our officers and other RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income.
RMR Inc. RMR LLC is a majority owned subsidiary of RMR Inc. and RMR Inc. is the managing member of RMR LLC. Adam D. Portnoy 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., and a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John G. Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC. Other officersand employee of RMR LLC, and each of our other officers is also serve as our officers. Asan officer and employee of September 30, 2018,RMR LLC, including Ethan S. Bornstein, the brother-in-law of Adam Portnoy.
On July 1, 2019, we owned 2,503,777sold all the shares of class A common stock of RMR Inc. See Note 13 for further information regarding our investmentthat we owned in an underwritten public offering at a price to the public of $40.00 per share pursuant to an underwriting agreement among us, RMR Inc., certain other REITs managed by RMR LLC that also sold their class A common stock of RMR Inc. in the offering, and the underwriters named therein. We received net proceeds of $93,568 from this sale, after deducting the underwriting discounts, commissions and other costs.
AIC. We, ABP Trust, TA and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders participatehistorically participated in a combined property insurance program arranged and reinsured in part by AIC. We paid aggregate annual premiums, including taxes and fees, of approximately $5,738 in connection with the renewal of this insuranceThe policies under that program for the policy year ending Juneexpired on September 30, 2019, which amount may be adjusted from timeand we and the other AIC shareholders elected not to time asrenew the AIC property insurance program; we acquire and dispose of properties that are included in thishave instead purchased standalone property insurance program.coverage with unrelated third party insurance providers.
As of September 30, 20182019 and December 31, 2017,2018, our investment in AIC had a carrying value of $9,163$9,347 and $8,192,$8,639, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income of $83 and $830 for the three months ended September 30, 2019 and 2018, respectively, and $617 and $881 for the nine months ended September 30, 2019 and 2018, respectively, related to our investment in AIC, which isamounts are presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Our other comprehensive income (loss) includes our proportionate part of unrealized gains and (losses) on fixed income securities that are owned by AIC related to our investment in AIC.
AIC is in the process of dissolving. In connection with its dissolution, we expect to receive a capital distribution in the fourth quarter of 2019.
For further information about these and certain other such relationships and certain other related person transactions, refer to our 20172018 Annual Report.
Note 11. Income Taxes

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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



We have elected to be taxed as a real estate investment trust, or REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We are subject to income tax in Canada, Puerto Rico and certain states despite our qualification for taxation as a REIT. Further, we lease our managed hotels to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated tax return and are subject to federal, state and foreign income taxes. Our consolidated income tax provision includes the income tax provision related to the

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(dollars in thousands, except share data)
(Unaudited)



operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.

During the three and nine months ended September 30, 2019, we recognized income tax expense of $467 and $1,266, respectively, which includes $229 and $447, respectively of foreign taxes and $238 and $819, respectively of state taxes. During the three and nine months ended September 30, 2018, we recognized income tax expense of $707 and $1,949, respectively, which includes $291 and $631, respectively, of foreign taxes and $416 and $1,318, respectively, of state taxes. During the three and nine months ended September 30, 2017, we recognized income tax expense (benefit) of $619 and $1,761, respectively, which includes $125 and $486, respectively, of foreign taxes, ($6) and $30, respectively, of federal taxes and $500 and $1,245, respectively, of state taxes.


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(dollars in thousands, except share data)
(Unaudited)






Note 12. Segment Information

We aggregate our hotels and travel centersnet lease portfolio into two2 reportable segments, hotel investments and net lease investments (previously named travel center investments,centers), based on their similar operating and economic characteristics.
 For the Three Months Ended September 30, 2018 For the Three Months Ended September 30, 2019
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Revenues:                
Hotel operating revenues  $521,250
 $
 $
 $521,250
 $525,290
 $
 $
 $525,290
Rental income 5,893
 74,797
 
 80,690
 5,565
 68,054
 
 73,619
FF&E reserve income  1,213
 
 
 1,213
 863
 
 
 863
Total revenues 528,356
 74,797
 
 603,153
 531,718
 68,054
 
 599,772
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses  366,994
 
 
 366,994
 377,895
 
 
 377,895
Other operating expenses 369
 1,338
 
 1,707
Depreciation and amortization  64,415
 36,592
 
 101,007
 66,929
 36,231
 
 103,160
General and administrative  
 
 13,425
 13,425
 
 
 12,464
 12,464
Total expenses  431,409
 36,592
 13,425
 481,426
 445,193
 37,569
 12,464
 495,226
                
Dividend income 
 
 626
 626
 
 
 
 
Unrealized gains on equity securities 
 
 43,453
 43,453
Unrealized losses on equity securities 
 
 (3,950) (3,950)
Interest income  
 
 478
 478
 177
 
 511
 688
Interest expense  
 
 (49,308) (49,308) 
 
 (52,375) (52,375)
Loss on early extinguishment of debt 
 
 (8,451) (8,451)
Income (loss) before income taxes and equity in earnings of an investee 96,947
 38,205
 (18,176) 116,976
 86,702
 30,485
 (76,729) 40,458
Income tax expense 
 
 (707) (707) 
 
 (467) (467)
Equity in earnings of an investee  
 
 830
 830
 
 
 83
 83
Net income (loss)  $96,947
 $38,205
 $(18,053) $117,099
 $86,702
 $30,485
 $(77,113) $40,074
                
 For the Nine Months Ended September 30, 2018 For the Nine Months Ended September 30, 2019
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Revenues:                
Hotel operating revenues  $1,496,125
 $
 $
 $1,496,125
 $1,521,368
 $
 $
 $1,521,368
Rental income 20,243
 223,458
 
 243,701
 16,700
 193,809
 
 210,509
FF&E reserve income  3,911
 
 
 3,911
 3,365
 
 
 3,365
Total revenues  1,520,279
 223,458
 
 1,743,737
 1,541,433
 193,809
 
 1,735,242
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses  1,056,057
 
 
 1,056,057
 1,076,011
 
 
 1,076,011
Other operating expenses 1,101
 3,318
 
 4,419
Depreciation and amortization  189,814
 110,494
 
 300,308
 200,533
 101,188
 
 301,721
General and administrative  
 
 38,280
 38,280
 
 
 36,906
 36,906
Total expenses  1,245,871
 110,494
 38,280
 1,394,645
 1,277,645
 104,506
 36,906
 1,419,057
                
Gain on sale of real estate

 
 159,535
 
 159,535
Dividend income 
 
 1,878
 1,878
 
 
 1,752
 1,752
Unrealized gains on equity securities 
 
 89,348
 89,348
Unrealized losses on equity securities 
 
 (43,761) (43,761)
Interest income  
 
 1,093
 1,093
 603
 
 1,171
 1,774
Interest expense  
 
 (145,589) (145,589) 
 
 (151,742) (151,742)
Loss on early extinguishment of debt 
 
 (160) (160) 
 
 (8,451) (8,451)
Income (loss) before income taxes and equity in earnings of an investee 274,408
 112,964
 (91,710) 295,662
 264,391
 248,838
 (237,937) 275,292
Income tax expense  
 
 (1,949) (1,949) 
 
 (1,266) (1,266)
Equity in earnings of an investee  
 
 881
 881
 
 
 617
 617
Net income (loss)  $274,408
 $112,964
 $(92,778) $294,594
 $264,391
 $248,838
 $(238,586) $274,643
                
 As of September 30, 2018 As of September 30, 2019
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Total assets  $4,538,553
 $2,419,794
 $293,206
 $7,251,553
 $4,823,114
 $4,642,072
 $50,317
 $9,515,503




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(dollars in thousands, except share data)
(Unaudited)






 For the Three Months Ended September 30, 2017 For the Three Months Ended September 30, 2018
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Revenues:                
Hotel operating revenues  $495,550
 $
 $
 $495,550
 $520,618
 $
 $
 $520,618
Rental income 7,617
 73,279
 
 80,896
 6,404
 74,918
 
 81,322
FF&E reserve income  1,142
 
 
 1,142
 1,213
 
 
 1,213
Total revenues  504,309
 73,279
 
 577,588
 528,235
 74,918
 
 603,153
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses  343,274
 
 
 343,274
 365,526
 
 
 365,526
Other operating expenses 427
 1,041
 
 1,468
Depreciation and amortization  61,996
 36,209
 
 98,205
 64,415
 36,592
 
 101,007
General and administrative  
 
 13,404
 13,404
 
 
 13,425
 13,425
Total expenses  405,270
 36,209
 13,404
 454,883
 430,368
 37,633
 13,425
 481,426
                
Gain on sale of real estate 9,348
 
 
 9,348
Dividend income 
 
 626
 626
 
 
 626
 626
Unrealized gains and losses on equity securities, net 
 
 43,453
 43,453
Interest income  
 
 211
 211
 314
 
 164
 478
Interest expense  
 
 (46,574) (46,574) 
 
 (49,308) (49,308)
Loss on early extinguishment of debt 
 
 
 
Income (loss) before income taxes and equity in earnings of an investee 108,387
 37,070
 (59,141) 86,316
 98,181
 37,285
 (18,490) 116,976
Income tax expense 
 
 (619) (619) 
 
 (707) (707)
Equity in earnings of an investee  
 
 31
 31
 
 
 830
 830
Net income (loss)  $108,387
 $37,070
 $(59,729) $85,728
 $98,181
 $37,285
 $(18,367) $117,099
                
 For the Nine Months Ended September 30, 2017 For the Nine Months Ended September 30, 2018
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Revenues:                
Hotel operating revenues  $1,392,995
 $
 $
 $1,392,995
 $1,494,283
 $
 $
 $1,494,283
Rental income 22,854
 217,420
 
 240,274
 21,827
 223,716
 
 245,543
FF&E reserve income  3,524
 
 
 3,524
 3,911
 
 
 3,911
Total revenues  1,419,373
 217,420
 
 1,636,793
 1,520,021
 223,716
 
 1,743,737
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses  965,546
 
 
 965,546
 1,052,121
 
 
 1,052,121
Other operating expenses 1,231
 2,705
 
 3,936
Depreciation and amortization  179,503
 107,308
 
 286,811
 189,814
 110,494
 
 300,308
General and administrative  
 
 76,097
 76,097
 
 
 38,280
 38,280
Total expenses  1,145,049
 107,308
 76,097
 1,328,454
 1,243,166
 113,199
 38,280
 1,394,645
                
Gain on sale of real estate 9,348
 
 
 9,348
Dividend income 
 
 1,878
 1,878
 
 
 1,878
 1,878
Unrealized gains and losses on equity securities, net 
 
 89,348
 89,348
Interest income  
 
 590
 590
 717
 
 376
 1,093
Interest expense  
 
 (135,329) (135,329) 
 
 (145,589) (145,589)
Loss on early extinguishment of debt 
 
 (160) (160)
Income (loss) before income taxes and equity in earnings of an investee 283,672
 110,112
 (208,958) 184,826
 277,572
 110,517
 (92,427) 295,662
Income tax expense 
 
 (1,761) (1,761) 
 
 (1,949) (1,949)
Equity in earnings of an investee  
 
 533
 533
 
 
 881
 881
Net income (loss)  $283,672
 $110,112
 $(210,186) $183,598
 $277,572
 $110,517
 $(93,495) $294,594
                
 As of December 31, 2017 As of December 31, 2018
 Hotels Travel Centers Corporate Consolidated Hotels Net Lease Corporate Consolidated
Total assets  $4,477,512
 $2,476,073
 $196,800
 $7,150,385
 $4,586,709
 $2,398,118
 $192,252
 $7,177,079



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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)







Note 13. Fair Value of Assets and Liabilities
The table below presents certain of our assets and liabilities carried at fair value at September 30, 2018,2019, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.asset or liability.
  
 Fair Value at September 30, 2018 Using  
 Fair Value at Reporting Date Using
   Quoted Prices in       Quoted Prices in    
   Active Markets for Significant Other Significant   Active Markets for Significant Other Significant
 Carrying Value at Identical Assets Observable Inputs Unobservable Inputs Carrying Value at Identical Assets Observable Inputs Unobservable Inputs
Description September 30, 2018 (Level 1) (Level 2) (Level 3) September 30, 2019 (Level 1) (Level 2) (Level 3)
Recurring Fair Value Measurement Assets:Recurring Fair Value Measurement Assets:      Recurring Fair Value Measurement Assets:      
Investment in TA (1)
 $19,494
 $19,494
 $
 $
 $8,430
 $8,430
 $
 $
Investment in RMR Inc.(2)
 $232,351
 $232,351
 $
 $
Non-recurring Fair Value Measurement Assets:Non-recurring Fair Value Measurement Assets:      
Assets of properties held for sale (2)
 $607,636
 $
 $518,300
 $89,336
(1)Our 3,420,000684,000 common shares of TA, which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $17,407 as of September 30, 2018.2019. During the three and nine months ended September 30, 2019, we recorded unrealized losses of $3,950 and $4,429, respectively, and during the three and nine months ended September 30, 2018, we recorded unrealized gains of $7,524 and $5,472, respectively, to adjust the carrying value of our investment in TA shares to theirits fair value as of September 30, 2018.value.
(2)Our 2,503,777 shares of class A common stock of RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $66,374 asAs of September 30, 2018. During the three and nine months ended September 30, 2018,2019, we owned 148 net lease properties located in 26 states classified as held for sale of $604,989, which is net of estimated costs to sell of $2,647. We have recorded unrealized gains136 of $35,929 and $83,876, respectively, to adjust the carryingthese properties at their estimated fair value of our investment$518,300 based on negotiated selling prices with third party buyers (Level 2 inputs as defined in RMR Inc. shares to theirthe fair value hierarchy under GAAP). The remaining 12 of these properties are recorded at their estimated fair value of $89,336 based on information derived from third party appraisals (Level 3 inputs as of September 30, 2018.defined in the fair value hierarchy under GAAP).
In addition to the investment securities included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility, term loan, senior notes and security deposits. At September 30, 20182019 and December 31, 2017,2018, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short term nature or variablefloating interest rates, except as follows:
 September 30, 2018 December 31, 2017 September 30, 2019 December 31, 2018
 Carrying Fair Carrying Fair Carrying Fair Carrying Fair
 
Value (1)
 Value 
Value (1)
 Value 
Value (1)
 Value 
Value (1)
 Value
Senior Unsecured Notes, due 2021 at 4.25% $396,578
 $402,810
 $395,497
 $413,676
 $398,019
 $405,594
 $396,938
 $404,582
Senior Unsecured Notes, due 2022 at 5.00%  495,307
 512,548
 494,398
 533,908
 496,518
 524,058
 495,609
 510,658
Senior Unsecured Notes, due 2023 at 4.50% 499,227
 502,033
 499,104
 523,275
 499,391
 515,003
 499,268
 503,295
Senior Unsecured Notes, due 2024 at 4.65% 347,788
 348,565
 347,484
 368,804
 348,193
 360,395
 347,890
 349,741
Senior Unsecured Notes, due 2024 at 4.35% 817,713
 836,026
 
 
Senior Unsecured Notes, due 2025 at 4.50% 345,571
 341,129
 345,055
 363,589
 346,259
 355,420
 345,743
 341,114
Senior Unsecured Notes, due 2026 at 5.25% 341,673
 353,250
 340,826
 377,431
 342,801
 363,979
 341,955
 354,060
Senior Unsecured Notes, due 2026 at 4.75% 445,756
 453,076
 
 
Senior Unsecured Notes, due 2027 at 4.95% 393,704
 392,696
 393,137
 422,914
 394,460
 406,718
 393,893
 391,660
Senior Unsecured Notes, due 2028 at 3.95% 389,322
 362,642
 388,461
 390,930
 390,472
 379,724
 389,610
 361,232
Senior Unsecured Notes, due 2029 at 4.95% 417,112
 406,604
 
 
Senior Unsecured Notes, due 2030 at 4.375% 387,105
 367,644
 
 
 388,239
 383,118
 387,389
 367,110
Total financial liabilities  $3,596,275
 $3,583,317
 $3,203,962
 $3,394,527
 $5,284,933
 $5,389,715
 $3,598,295
 $3,583,452
(1)Carrying value includes unamortized discounts and premiums and issuance costs.
At September 30, 20182019 and December 31, 2017,2018, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 20172018 Annual Report.
Overview (dollar amounts in thousands, except share amounts)amounts and per-room hotel data)
We are a REIT organized under the laws of the State of Maryland. As of September 30, 2019, we owned 1,274 properties in 48 states, the District of Columbia, Canada and Puerto Rico.
On September 20, 2019, we completed the SMTA Transaction as a result of which, we acquired 767 properties with 12.4 million rentable square feet for an aggregate transaction value of $2,482,382. The portfolio consists of 767 service-oriented retail properties net leased to tenants in 23 distinct industries and 163 brands that include 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.
Management agreements and leases. At September 30, 2018,2019, we owned 325328 hotels operated under eight agreements; 323agreements. We leased 326 of these hotels are leased by us to our wholly owned TRSs andthat are managed by hotel operating companies, and the two remaining hotels are leased to hotel operating companies. At September 30, 2018, our 199 owned travel centers were leasedWe own 946 service-oriented properties with 279 tenants subject to TA under five agreements.“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 offrom our managed hotels and rental income and other operating expenses from our leased hotels and travel centers. 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. If our tenants, managers or guarantors do not earn or pay the minimum returns and rents due to us, our cash flows will decline and we may be unable to repay our debt, fund our debt service obligations, pay distributions to our shareholders or the amounts of our distributions may decline.
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 September 30, 2019 and 2018, we excluded six hotels from our comparable results. Three of these hotels were not owned for the entire periods and three were closed for major renovations during part of the periods presented. For the nine months ended September 30, 2019 and 2018, we excluded eight hotels from our comparable results. Five of these hotels were not owned for the entire periods and three were closed for major renovations during part of the periods presented.
Hotel operations. During the three and nine months ended September 30, 2018,2019, the U.S. hotel industry generally realized increases in average daily rate, or ADR and revenue per available room, or RevPAR and declines in occupancy compared to the same period in 2017.2018. During the three months ended September 30, 2018,2019, our 307322 comparable hotels that we owned continuously since July 1, 20172018 produced an aggregate year over year increasedecreases in ADR, below the industry generally and larger declines in occupancy and RevPAR than the industry generally.RevPAR. During the nine months ended September 30, 2018,2019, our 303320 comparable hotels that we owned continuously since January 1, 20172018 produced aggregate year over year increasesdecreases in ADR, occupancy and RevPAR below the industry generally and a larger decline in occupancy than the industry generally.RevPAR. We believe these results are, in part, due to the disruption and displacement at certain of our hotels undergoing renovations, increased competition from new hotel room supply in certain markets and decreased business activity in areas where some of our hotels are located.
For the three months ended September 30, 20182019 compared to the same period in 20172018 for our 307322 comparable hotels that we have owned continuously since July 1, 2017:hotels: ADR decreased 1.6% to $126.80; occupancy increased 1.8%1.0 percentage point to $130.79; occupancy decreased 1.8 percentage points to 77.8%77.9%; and RevPAR decreased 0.5%0.3% to $101.75.$98.78.
For the three months ended September 30, 20182019 compared to the same period in 20172018 for all our 325328 hotels: ADR increased 1.5%decreased 2.2% to $130.42;$127.82; occupancy decreased 2.5 percentage points to 76.9%remained unchanged at 77.0%; and RevPAR decreased 1.7%2.2% to $100.29.$98.42.
For the nine months ended September 30, 20182019 compared to the same period in 20172018 for our 303320 comparable hotels that we have owned continuously since January 1, 2017:hotels: ADR increased 2.0%decreased 0.7% to $129.52;$127.39; occupancy decreased 0.70.9 percentage points to 76.5%74.2%; and RevPAR increased 1.0%decreased 1.9% to $99.08.$94.52.

For the nine months ended September 30, 20182019 compared to the same period in 20172018 for all our 325328 hotels: ADR increased 1.9%decreased 0.9% to $130.49;$129.91; occupancy decreased 1.81.2 percentage points to 75.1%73.9%; and RevPAR decreased 0.5%2.5% to $98.00.$96.00.
Net Lease Portfolio. As of September 30, 2019, we owned 946 net lease service-oriented retail properties with 17.6 million square feet and annual minimum rent of $418,635, which represented approximately 41% of our total annual minimum returns and rents. Our net lease portfolio was 98% occupied as of September 30, 2019, by 279 tenants with a weighted (by annual minimum rent) lease term of 11.3 years, operating under 163 brands in 23 distinct industries. TA is our largest tenant. As of September 30, 2019, we leased 179 travel centers to TA under five leases that expire between 2029 and 2035 and require annual minimum rents of $246,088 which represents 24.1% of our consolidated annual minimum rents and returns.
Additional details of our hotel operating agreements and our net lease agreements with TA are set forth in Notes 8 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 3238 through 3445 below.


Results of Operations (dollar amounts in thousands, except share amounts)
Three Months Ended September 30, 20182019 Compared to the Three Months Ended September 30, 20172018
 For the Three Months Ended September 30, For the Three Months Ended September 30,
     Increase % Increase     Increase % Increase
 2018 2017 (Decrease) (Decrease) 2019 2018 (Decrease) (Decrease)
Revenues:  
  
    
  
  
    
Hotel operating revenues $521,250
 $495,550
 $25,700
 5.2 % $525,290
 $520,618
 $4,672
 0.9 %
Rental income - hotels 5,893
 7,617
 (1,724) (22.6)% 5,565
 6,404
 (839) (13.1)%
Rental income - travel centers 74,797
 73,279
 1,518
 2.1 %
Rental income - net lease portfolio 68,054
 74,918
 (6,864) (9.2)%
Total rental income 80,690
 80,896
 (206) (0.3)% 73,619
 81,322
 (7,703) (9.5)%
FF&E reserve income 1,213
 1,142
 71
 6.2 % 863
 1,213
 (350) (28.9)%
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses 366,994
 343,274
 23,720
 6.9 % 377,895
 365,526
 12,369
 3.4 %
Other operating expenses 1,707
 1,468
 239
 16.3 %
Depreciation and amortization - hotels 64,415
 61,996
 2,419
 3.9 % 66,929
 64,415
 2,514
 3.9 %
Depreciation and amortization - travel centers 36,592
 36,209
 383
 1.1 %
Depreciation and amortization - net lease portfolio 36,231
 36,592
 (361) (1.0)%
Total depreciation and amortization 101,007
 98,205
 2,802
 2.9 % 103,160
 101,007
 2,153
 2.1 %
General and administrative 13,425
 13,404
 21
 0.2 % 12,464
 13,425
 (961) (7.2)%
                
Gain on sale of real estate 
 9,348
 (9,348) (100.0)%
Dividend income 626
 626
 
 
 
 626
 (626) (100.0)%
Unrealized gains on equity securities 43,453
 
 43,453
 n/m
Unrealized gains (losses) on equity securities, net (3,950) 43,453
 (47,403) n/m
Interest income 478
 211
 267
 126.5 % 688
 478
 210
 43.9 %
Interest expense (49,308) (46,574) (2,734) 5.9 % (52,375) (49,308) (3,067) 6.2 %
Loss on early extinguishment of debt (8,451) 
 (8,451) n/m
Income before income taxes and equity earnings of an investee 116,976
 86,316
 30,660
 35.5 % 40,458
 116,976
 (76,518) (65.4)%
Income tax expense (707) (619) (88) 14.2 % (467) (707) 240
 (33.9)%
Equity in earnings of an investee 830
 31
 799
 2,577.4 % 83
 830
 (747) (90.0)%
Net income available for common shareholders $117,099
 $85,728
 $31,371
 36.6 %
Net income $40,074
 $117,099
 $(77,025) (65.8)%
                
Weighted average shares outstanding (basic) 164,232
 164,149
 83
 n/m
 164,321
 164,232
 89
 0.1 %
Weighted average shares outstanding (diluted) 164,274
 164,188
 86
 n/m
 164,348
 164,274
 74
 n/m
                
Net income available for common shareholders per common share (basic and diluted) $0.71
 $0.52
 $0.19
 36.4 %
Net income per common share (basic and diluted) $0.24
 $0.71
 $(0.47) (66.2)%
References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2018,2019, compared to the three months ended September 30, 2017.2018.
Hotel operating revenues. The increase in hotel operating revenues is a result of our hotel acquisitions since July 1, 2017 ($19,930), increased revenues at certain of our managed hotels due to increases in ADR and higher occupancies ($17,116)18,683) and the conversion of oneour hotel from a leased to managed property during theacquisitions since July 1, 2018 period

($10,079)9,538), partially offset by decreased revenues at certain of our managed hotels primarily as a result of lower occupancies ($14,290),13,347) and decreased revenues at certain of our other managed hotels undergoing renovations during all or part of the 20182019 period resulting primarily from lower occupancies ($5,091) and decreased revenues as a result of our hotel dispositions since July 1, 2017 ($2,044)10,202). Additional operating statistics of our hotels are included in the table on page 35.39.
Rental income - hotels. The decrease in rental income - hotels is primarily the result of the conversion of one hotela previously deferred gain from a leased to managed property during thehistorical lease default becoming fully amortized in 2018 period ($1,899)888), partially offset by contractual rent increases under certain of our hotel leases and increases in the minimum rents due to us as we funded improvements at certain of our leased hotels since July 1, 2017 ($175)49). Rental income - hotels for the 20182019 and 20172018 periods includes $100$85 and $99,$100, respectively, of adjustments to record rent on a straight line basis.
Rental income - travel centers. net lease portfolio. The increasedecrease in rental income - travel centersnet lease portfolio is a result of increasesthe sale of 20 travel centers to TA and our lease amendments with TA in January 2019 ($12,349), partially offset by our rents from properties we acquired pursuant to the SMTA Transaction ($5,485). See Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these transactions. We reduced rental income by $3,131 in the minimum rents due to us for improvements we purchased at certain of our travel centers since July 1, 2017 ($1,518). Rental2019 period and increased rental income - travel

centers forby $3,036 in the 2018 and 2017 periods includes $3,037 and $2,988, respectively, of adjustments necessaryperiod to record scheduled rent increases under our TAcertain 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 increasedecrease in FF&E reserve income is the result of increaseddecreased sales at certain of our leased hotels in the 20182019 period.

Hotel operating expenses. The increase in hotel operating expenses is a result of our hotel acquisitions since July 1, 2017 ($16,840), the conversion of one hotel from a leased to managed property during the 2018 period ($9,251) and an increase in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels resulting primarily from higher occupancies and general price increases ($6,502)15,031), our hotel acquisitions since July 1, 2018 ($9,603) and an increase in real estate taxes at certain of our hotels ($3,163), partially offset by operating expense decreases at certain managed hotels undergoing renovations during all or part of the 2019 period resulting primarily from lower occupancies ($10,524), an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($3,331) and a decrease in the amount of guaranty and security deposit replenishment under certain of our hotel management agreements ($4,895), our hotel dispositions since July 1, 2017 ($1,916), operating expense decreases at certain managed hotels undergoing renovations during all or part of the 2018 period resulting primarily from lower occupancies ($1,763) and an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($299)1,573). 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 managementoperating 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 $5,204$3,631 and $10,099$5,204 during the three months ended September 30, 20182019 and 2017,2018, respectively, as a result of such replenishments. When our guarantees and security deposits are utilized to cover shortfalls of hotels'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 $3,630 and $299 during the three months ended September 30, 2019 and 2018, respectively, as a result of such utilization. There was no such utilization or reduction to hotel
Other operating expenses. The increase in other operating expenses foris a result of operating expenses we pay at certain properties we acquired as part of the three months endedSMTA Transaction in September 30, 2017.2019.
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 July 1, 20172018 ($4,083)5,771) and our hotel acquisitions since July 1, 20172018 ($2,696)1,256), partially offset by certain of our depreciable assets becoming fully depreciated since July 1, 20172018 ($4,360)4,513).
Depreciation and amortization - travel centers. net lease portfolio. The increasedecrease in depreciation and amortization - travel centersnet lease portfolio is a result of the depreciation and amortization ofour travel center improvements we purchaseddispositions since July 1, 20172018 ($1,609), partially offset by2,783) and certain of our depreciable assets becoming fully depreciated since July 1, 20172018 ($1,226)1,857), partially offset by the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($4,253) and the depreciation and amortization of net lease improvements we purchased since July 1, 2018 ($26).
General and administrative. The increasedecrease in general and administrative costs is primarily due to an increase in professional service expenses, partially offset by a decreasedecreases in business management fees primarily as a result of no estimated incentive fees being accrued for the 2018 period.and professional service expenses.
Gain on sale of real estate. We recorded a $9,348 gain on sale of real estate in the 2017 period in connection with the sale of three hotels.
Dividend income. Dividend income represents the dividends we received from our former investment in RMR Inc.

Unrealized gains on equity securities. Unrealized gainsand (losses) on equity securities, net. Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in RMR Inc., which we sold in July 2019, and TA common shares to their fair value as of September 30, 2018 in accordance with new GAAP standards effective January 1,2019 and September 30, 2018.
Interest income. The increase in interest income is due to higher average cash balances and interest rates during the 20182019 period.
Interest expense. The increase in interest expense is due to higher average outstanding borrowings partially offset by a lowerand weighted average interest rate in the 2019 period.
Loss on early extinguishment of debt. We recorded a loss of $8,451 on early extinguishment of debt in the 2019 period resulting from the termination of a term loan commitment we arranged in connection with the SMTA Transaction. We recorded a loss of $160 on early extinguishment of debt in the 2018 period.period in connection with amending our revolving credit facility and term loan.
Income tax expense. We recognized higher incomelower state taxes during the 20182019 period primarily due to an increasea decrease in the amount of foreignstate sourced income subject to income taxes.

Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of the earnings of AIC.
Net income available for common shareholders.income. Our net income available for common shareholders and net income available for common shareholders per common share (basic and diluted) each increaseddecreased in the 20182019 period compared to the 20172018 period primarily due to the revenue and expense changes discussed above.


Nine Months Ended September 30, 20182019 Compared to the Nine Months Ended September 30, 20172018
 For the Nine Months Ended September 30, For the Nine Months Ended September 30,
     Increase % Increase     Increase % Increase
 2018 2017 (Decrease) (Decrease) 2019 2018 (Decrease) (Decrease)
Revenues:    
    
    
    
Hotel operating revenues $1,496,125
 $1,392,995
 $103,130
 7.4 % $1,521,368
 $1,494,283
 $27,085
 1.8 %
Rental income - hotels 20,243
 22,854
 (2,611) (11.4)% 16,700
 21,827
 (5,127) (23.5)%
Rental income - travel centers 223,458
 217,420
 6,038
 2.8 %
Rental income - net lease portfolio 193,809
 223,716
 (29,907) (13.4)%
Total rental income 243,701
 240,274
 3,427
 1.4 % 210,509
 245,543
 (35,034) (14.3)%
FF&E reserve income 3,911
 3,524
 387
 11.0 % 3,365
 3,911
 (546) (14.0)%
                
Expenses:  
  
  
  
  
  
  
  
Hotel operating expenses 1,056,057
 965,546
 90,511
 9.4 % 1,076,011
 1,052,121
 23,890
 2.3 %
Other operating expenses 4,419
 3,936
 483
 12.3 %
Depreciation and amortization - hotels 189,814
 179,503
 10,311
 5.7 % 200,533
 189,814
 10,719
 5.6 %
Depreciation and amortization - travel centers 110,494
 107,308
 3,186
 3.0 %
Depreciation and amortization - net lease portfolio 101,188
 110,494
 (9,306) (8.4)%
Total depreciation and amortization 300,308
 286,811
 13,497
 4.7 % 301,721
 300,308
 1,413
 0.5 %
General and administrative 38,280
 76,097
 (37,817) (49.7)% 36,906
 38,280
 (1,374) (3.6)%
                
Gain on sale of real estate 
 9,348
 (9,348) (100.0)% 159,535
 
 159,535
 n/m
Dividend income 1,878
 1,878
 
 
 1,752
 1,878
 (126) (6.7)%
Unrealized gains on equity securities 89,348
 
 89,348
 n/m
Unrealized gains (losses) on equity securities, net (43,761) 89,348
 (133,109) n/m
Interest income 1,093
 590
 503
 85.3 % 1,774
 1,093
 681
 62.3 %
Interest expense (145,589) (135,329) (10,260) 7.6 % (151,742) (145,589) (6,153) 4.2 %
Loss on early extinguishment of debt (160) 
 (160) n/m
 (8,451) (160) (8,291) 5,181.9 %
Income before income taxes and equity earnings of an investee 295,662
 184,826
 110,836
 60.0 % 275,292
 295,662
 (20,370) (6.9)%
Income tax expense (1,949) (1,761) (188) 10.7 % (1,266) (1,949) 683
 (35.0)%
Equity in earnings of an investee 881
 533
 348
 65.3 % 617
 881
 (264) (30.0)%
Net income 294,594
 183,598
 110,996
 60.5 % $274,643
 $294,594
 $(19,951) (6.8)%
Preferred distributions 
 (1,435) 1,435
 (100.0)%
Excess of liquidation preference over carrying value of preferred shares redeemed 
 (9,893) 9,893
 (100.0)%
Net income available for common shareholders $294,594
 $172,270
 $122,324
 71.0 %
                
Weighted average shares outstanding (basic) 164,212
 164,131
 81
 n/m
 164,294
 164,212
 82
 n/m
Weighted average shares outstanding (diluted) 164,242
 164,168
 74
 n/m
 164,332
 164,242
 90
 0.1 %
                
Net income available for common shareholders per common share (basic and diluted) $1.79
 $1.05
 $0.74
 70.5 %
Net income per common share (basic and diluted) $1.67
 $1.79
 $(0.12) (6.7)%
References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2018,2019, compared to the nine months ended September 30, 2017.2018.
Hotel operating revenues. The increase in hotel operating revenues is a result of our hotel acquisitions since January 1, 20172018 ($78,603)39,010), increased revenues at certain of our managed hotels due to increases in ADR and higher occupancies ($47,769)38,012) and the conversion of one hotel from a leased to managed property during the 2018 period ($14,993)12,572), partially offset by decreased revenues at certain of our other managed hotels primarily as a result of lower occupancies ($21,614), decreased revenues as a result of our hotel dispositions since January 1, 2017 ($8,799)31,533) and decreased revenues at certain of our other managed hotels undergoing renovations during all or part of the 20182019 period resulting primarily from lower occupancies ($7,822)30,976). Additional operating statistics of our hotels are included in the table on page 35.39.
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 2018 period ($3,022)2,812) and a previously deferred gain from a historical lease default becoming fully amortized in 2018 ($2,364), partially offset by contractual rent increases under certain of our hotel leases and increases in the minimum rents due to us as we funded improvements at certain of our leased hotels since

January 1, 2017 ($411)49). Rental income - hotels for the 20182019 and 20172018 periods includes $293$254 and $301,$293, respectively, of adjustments to record rent on a straight line basis.
Rental income - travel centers. net lease portfolio. The increasedecrease in rental income - travel centersnet lease portfolio is a result of increasesthe sale of 20 travel centers to TA and our lease amendments with TA in January 2019 ($35,392), partially offset by rents related to properties we acquired pursuant to the SMTA Transaction ($5,485). See Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these transactions. We reduced

rental income by $7,622 in the minimum rents due to us for improvements we purchased at certain of our travel centers since January 1, 2017 ($5,246)2019 period and our travel center acquisitions since January 1, 2017 ($792). Rentalincreased rental income - travel centers forby $9,066 in the 2018 and 2017 periods includes $9,066 and $8,907, respectively, of adjustments necessaryperiod to record scheduled rent increases under our TAcertain 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 increasedecrease in FF&E reserve income is the result of increaseddecreased sales at certain of our leased hotels in the 20182019 period.

Hotel operating expenses. The increase in hotel operating expenses is a result of our hotel acquisitions since January 1, 20172018 ($67,696)39,350), an increase in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels resulting primarily from higher occupancies and general price increases ($28,871)23,749), the conversion of one hotel from a leased to managed property during the 2018 period ($14,612)13,186) and an increase in real estate taxes at certain of our hotels ($4,160), partially offset by operating expense decreases at certain managed hotels undergoing renovations during all or part of the decrease2019 period resulting primarily from lower occupancies ($31,377), an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($312), partially offset by14,789) and a decrease in the amount of guaranty and security deposit replenishment under certain of our hotel management agreements ($12,020),10,389). When our guarantees and our security deposits are replenished by cash flows from hotel dispositions since January 1, 2017 ($7,761) andoperations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expense decreases at certain managed hotels undergoing renovations during all or part of the 2018 period resulting primarily from lower occupancies ($1,199).expenses. Hotel operating expenses were increased by $3,910 and $14,299 during the nine months ended September 30, 20182019 and 2017 were increased by $14,299 and $26,319,2018, respectively, as a result of replenishment of security deposits and guarantees under certain of our hotel management agreements and were decreased by $2,377 and $2,689, respectively, as a result of utilizingagreements. When our guarantees and our security deposits are utilized to cover shortfalls of hotels'hotel cash flows from the minimum payments due to us.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 $17,166 and $2,377 during the nine months ended September 30, 2019 and 2018, 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, 20172018 ($12,880)18,628) and our hotel acquisitions since January 1, 20172018 ($9,433)4,183), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 20172018 ($12,002)12,092).
Depreciation and amortization - travel centers. net lease portfolio. The increasedecrease in depreciation and amortization - travel centersnet lease portfolio is a result of our travel center dispositions since January 1, 2018 ($8,377) and certain of our depreciable assets becoming fully depreciated since January 1, 2018 ($5,918), partially offset by the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($4,256) and the depreciation and amortization of travel center improvements we purchased since January 1, 20172018 ($4,905) and our travel center acquisitions since January 1, 2017 ($332), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2017 ($2,051)733).
General and administrative. The decrease in general and administrative costs is primarily due to a decreasedecreases in business management fees as a result of no estimated incentive fees being accrued for the 2018 period.and professional service expenses.
Gain on sale of real estate. We recorded a $9,348$159,535 gain on sale of real estate in the 20172019 period in connection with the salesales of three hotels.20 travel centers.
Dividend income. Dividend income represents the dividends we received from our former investment in RMR Inc.
Unrealized gains on equity securities. Unrealized gainsand (losses) on equity securities, net. Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in RMR Inc., which we sold in July 2019, and TA common shares to their fair value as of September 30, 2018 in accordance with new GAAP standards effective January 1,2019 and September 30, 2018.
Interest income. The increase in interest income is due to higher average cash balances and interest rates during the 20182019 period.
Interest expense. The increase in interest expense is due to higher average outstanding borrowings partially offset by a lowerand weighted average interest rate in the 20182019 period.
Loss on early extinguishment of debt. We recorded a loss of $8,451 on early extinguishment of debt in the 2019 period resulting from the termination of a term loan commitment in connection with the SMTA Transaction. We recorded a loss of $160 on early extinguishment of debt in the 2018 period in connection with the amendment ofamending our revolving credit facility and term loan.

Income tax expense. We recognized higherlower state and foreign taxes during the 20182019 period primarily due to an increasea decrease in the amount of state and foreign sourced income subject to income taxes.

Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of the earnings of AIC.
Preferred distributions. The decrease in preferred distributions is the result of the redemption of all of our outstanding 7.125% Series D cumulative redeemable preferred shares in February 2017.
Excess of liquidation preference over carrying value of preferred shares redeemed. The excess of liquidation preference over carrying value of preferred shares redeemed is the amount by which the liquidation preference for our 7.125% Series D cumulative redeemable preferred shares that were redeemed during the 2017 period exceeded our carrying amount for those preferred shares as of the date of redemption.
Net income. Our net income and net income available for common shareholders. Our net income, net income available for common shareholders and net income available for common shareholders per common share (basic and diluted) each increaseddecreased in the 20182019 period compared to the 20172018 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 September 30, 2018, 3242019, 327 of our hotels (including one leased hotel) were included in seven combination portfolio agreements and one of our hotels was leased and not included in a portfolio; and all 325328 hotels were managed by or leased to hotel operating companies. Our 199 travel centers946 net lease properties are leased under five portfolio agreements. Allto 279 tenants as of September 30, 2019. The costs of operating and maintaining our properties are generally paid by the hotel managers as agents for us or by our tenants for their own account. Our hotel managers and tenants derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our minimum returns and rents, from their separate resources. Our hotel managers and tenants include Marriott, InterContinental,IHG, Sonesta, Wyndham, Hyatt and Radisson. Our travel centers are leased to TA.TA is our largest net lease tenant. No other net lease tenant represents more than 1% of our total annualized minimum returns or rents.
We define coverage for each of our hotel management agreements or leases as total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows which 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 3238 through 34.45. For the twelve months ended September 30, 2018, two2019, five of our eight hotel operating agreements, representing 18%40% of our total annual minimum returns and minimum rents, generated coverage of less than 1.0x (0.67x and 0.75x, respectively)(with a range from 0.58x to 0.95x).
We define net lease coverage for our travel center leases as annual property level revenues minus all property level expensesadjusted 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 due to us. Forof the twelve months ended September 30, 2018, the operating results from our 199 properties in our five travel center leases generated combined coverage of 1.60x. Because a large percentage of TA’s business is conducted at properties leased from us,net lease portfolio. The annual property level rent coverageadjusted EBITDAR is determined based on the most recent operating statements, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not be an appropriate way to evaluate TA’s ability to pay rents due tohave been prepared in accordance with GAAP and are not independently verified by us. We believe property level rentProperties that do not report operating information are excluded from the coverage is nonetheless one useful indicator of the performance and value of our properties as we believe it is what an operator interested to acquire these properties or the leaseholds might use to evaluate the contribution of these properties to their earnings before corporate level expenses.
Three hundred ninety-nine (399) of our properties, representing 74% of our aggregate annual minimum returns and rents ascalculations. As of September 30, 2018, are operated under 102019, our net lease properties generated coverage of 2.27x.
Certain of our management arrangements or leases which 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.
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, especially if our hotel renovation and rebranding activities do not result in improved operating results at these hotels. Accordingly, the effectiveness of our various security features to provide uninterrupted payments to us is not assured. If any of our hotel managers, tenants or guarantors default in their payment obligations to us, our cash flows will

decline and we may become unable to continue to pay distributions to our shareholders or the amount of the distributions may decline.
In particular, Wyndham'sWyndham’s guarantee of the minimum returns due from our hotels which are managed by Wyndham was depleted during 2017 and remained depleted as of September 30, 2018.2019. The Wyndham agreement provides that if the hotel cash flows available after payment of hotel operating expenses are less than the minimum returns due to us and the guaranty has been depleted, to avoid default Wyndham is required to pay us the greater of the available hotel cash flows after payment of hotel operating expenses and 85% of the contractual amount due. During the three and nine months ended September 30, 2018,2019, Wyndham paid 85% of the minimum returns due under the management agreement, which payments were an aggregate of $1,035$1,049 and $3,100,$3,137, respectively, less than the minimum returns due for those periods. We are exiting our relationship with Wyndham and expect to sell or rebrand our 22 hotels currently managed by Wyndham. We amended our agreement with Wyndham by SVC in October 2019 whereby the term of the management agreement will expire on September 30, 2020 unless sooner terminated with respect to any hotels that period. We can provide no assurance asare sold or rebranded. As of September 30, 2019, Wyndham was paying 85% of the annual minimum returns due us to whetheravoid a default. Under the amendment, Wyndham will continuepay to pay at leastus all available cash

flows of the greater of available hotel cash flowshotels after payment of hotel operating expenses and 85%expenses. Wyndham will not be entitled to any base management fees for the remainder of the agreement term.
On November 1, 2019, we rebranded two full-service hotels previously managed by Wyndham in Chicago, IL and Irvine, CA to the Sonesta brands under a short term agreement with Sonesta that expires on December 31, 2020. We currently lease 48 vacation units in the Chicago hotel to Destinations, which requires annual minimum returns duerent of $1,493 (approximately $373 per quarter). We amended this lease so the term of the lease expires on March 31, 2020, at which time Destinations will vacate the leased space.
Marriott has notified us that they will not renew the lease for the Kauai Marriott under our Marriott No. 5 agreement, which expires December 31, 2019. We are in negotiations with Marriott regarding this hotel, but we can provide no assurance that we and Marriott will reach an agreement regarding the Kauai Marriott or what its terms may be. If we and Marriott are unable to usreach an agreement, we will evaluate alternatives for this hotel, which may include rebranding or if Wyndham will default on its payments.     selling it.
Our Operating Liquidity and Capital Resources
Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are minimum returns from our managed hotels, minimum rents from our leased hotels and travel centersnet 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. However, as a result of economic conditions or otherwise, our managers and tenants may become unable or unwilling to pay minimum returns and rents to us when due, and, as a result, our cash flows and net income would decline and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.
Changes in our cash flows for the nine months ended September 30, 20182019 compared to the same period in 20172018 were as follows: (1) cash flows provided by operating activities decreasedincreased from $442,277 in 2017 to $403,404 in 2018;2018 to $432,530 in 2019; (2) cash flows used in investing activities decreasedincreased from $726,018 in 2017 to $277,857 in 2018;2018 to $2,457,485 in 2019; and (3) cash flows from financing activities changed from $299,993 of cash provided by financing activities in 2017 to $137,550 of cash used in financing activities in 2018.2018 to $2,019,461 of cash provided by financing activities in 2019.
The decreaseincrease in cash flows provided by operating activities for the nine months ended September 30, 20182019 as compared to the prior year period is primarily due to an increase in incentive business management fees paid to RMR LLC in the 2018 period with respect to 2017 and higher interest payments in the 2018 period, partially offset by an increase in the minimum returns and rents paid to us in the 20182019 period due to our acquisitions and funding of improvements to our hotels and travel centers since January 1, 2017. The2018 and a decrease in incentive business management fees paid to RMR LLC in the 2019 period, partially offset by a decrease in minimum rents paid to us in the 2019 period under our travel center leases, higher interest payments in the 2019 period and an increase in security deposit utilization in the 2019 period. The increase in cash flows used in investing activities for the nine months ended September 30, 20182019 as compared to the prior year is primarily due to an increase in real estate acquisition activity in the 2019 period and an increase in our capital improvement fundings in the 2019 period, partially offset by the proceeds received from our sale of 20 travel centers and the sale of our shares of RMR Inc. in the 2019 period. The increase in cash used in financing activities for the nine months ended September 30, 2019 as compared to the prior year period is primarily due to our lower real estate acquisition activity in the 2018 period, partially offset by an increase in our capital improvement fundingsissuance of notes in the 2018 period. The change from cash flows provided by financing activities in the 20172019 period to cash used in financing activities in the 2018 period is primarily due to our lowerand higher net borrowings in the 2018 period under our revolving credit facility partially offset by the redemption of our 7.125% Series D cumulative redeemable preferred shares in the 2017 period and lower proceeds from the issuance of notes in the 2018 period compared to the 20172018 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 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 nine months ended September 30, 2018,2019, our hotel managers and tenants deposited $73,564, including $18,000 of insurance proceeds,$54,440 to these accounts and spent $89,401$143,692 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of September 30, 2018,2019, there was $65,644$53,519 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

Our 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 nine months ended September 30, 2018,2019, we funded $73,605$123,190 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels as follows:

During the nine months ended September 30, 2018,2019, we funded $1,769$15,778 for capital improvements to certain hotels under our Marriott No. 1 agreement using cash on hand and borrowings under our revolving credit facility. We currently expect to fund approximately $8,200$1,300 for capital improvements under this agreement during the last three months of 20182019 using cash on hand or borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase.

During the nine months ended September 30, 2018,2019, we funded $6,355$18,600 for capital improvements to certain hotels under our Marriott No. 234 agreement using cash on hand and borrowings under our revolving credit facility. We currently expect to fund approximately $1,200$11,700 for capital improvements under this agreement during the last three months of 20182019 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 to hotels under our InterContinentalIHG agreement during the nine months ended September 30, 2018.2019. We currently expect to fund approximately $44,600$65,500 during the last three months of 2018 and approximately $56,200 during 2019 for capital improvements 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.
Our Sonesta agreement does not require FF&E escrow deposits. Under our Sonesta agreement, we are required to fund capital expenditures that we approvemade at our hotels. During the nine months ended September 30, 2018,2019, we funded $64,032$67,495 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 approximately $26,900$48,000 during the last three months of 20182019 and approximately $79,100$28,000 during 20192020 for capital improvements under this agreement using cash on hand or borrowings under our revolving credit facility. These investments primarily relate to planned renovations to the 15 hotels we acquired in 2017 and one hotel converted from leased to managed and added to the portfolio in 2018 and converted to Sonesta brands. As we fund these improvements, the contractual minimum returns payable to us increase to the extent amounts funded exceed threshold amounts, as defined in our Sonesta agreement.
Our Wyndham agreement requiresrequired FF&E escrow deposits only if there are excess cash flows after payment of our minimum returns. No FF&E escrow deposits were required during the nine months ended September 30, 2018.2019. During the nine months ended September 30, 2018,2019, we funded $1,449$2,283 for capital improvements to certain hotels included in our Wyndham agreement using cash on hand orand borrowings under our revolving credit facility. We currently expect to fund approximately $6,600 for$1,000 capital improvements under this agreement during the last three months of 20182019 using cash on hand orand borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase.
Pursuant to an agreement we entered into with Radisson in June 2017, we have agreed to fund up to $35,000 for renovation costs at certain hotels under our Radisson agreement. We did not fund any renovation costs to hotels under our Radisson agreement duringDuring the nine months ended September 30, 2018.2019, we funded $19,034 for capital improvements to certain hotels under our Radisson agreement using cash on hand and borrowings under our revolving credit facility. We currently do not expect to fund approximately $2,800capital improvements under this agreement during the last three months of 2018 and approximately $32,200 during 2019 for these renovations using cash on hand or borrowings under our revolving credit facility. As we fund these renovations, the contractual minimum returns payable to us will increase.2019.
Our travel centernet lease portfolio leases with TA do not require FF&E escrow deposits. However, TA istenants under these leases are required to maintain the leased travel centers,properties, including structural and non-structural components. UnderCertain of our net lease portfolio leases, including under all of our TA leases, TAlessees may request that we purchase qualifying capital improvements to the leased facilities in return for minimum rent increases. We funded $44,653 for purchases ofdid not fund any capital improvements to properties under these lease provisions during the nine months ended September 30, 2018. We currently expect to fund approximately $13,600 for the purchase of capital improvements under these agreements during the last three months of 2018 using cash on hand or borrowings under our revolving credit facility. TA is2019. Tenants are not obligated to request and we are not obligated to purchase any such improvements.
On February 2, 2018,As of September 30, 2019, we issued $400,000 principal amounthad $5,900 of 4.375% senior notes due 2030unspent leasing-related obligations assumed as a part of the SMTA Transaction.
In January 2019, in an underwritten public offering. Neta series of transactions, we sold 20 travel centers in 15 states to TA for $308,200. We used a portion of the proceeds from this offering were $386,400 after discounts and expenses and were usedthese sales to repay amounts outstandingborrowings under our revolving credit facility and for general business purposes.purposes, including hotel acquisitions.
On February 22, 2018,21, 2019, we paid a regular quarterly distribution to our common shareholders of record on January 29, 201828, 2019 of $0.52$0.53 per share, or $85,460.$87,154. On May 17, 2018,16, 2019, we paid a regular quarterly distribution to our common shareholders of record on April 30, 201829, 2019 of $0.53$0.54 per share, or $87,105.$88,798. On August 16, 2018,15, 2019, we paid a regular quarterly distribution to our

common shareholders of record on July 30, 201829, 2019 of $0.53$0.54 per share, or $87,113. We funded these distributions using cash on hand and borrowings under our revolving credit facility.$88,803. On October 18, 2018,17, 2019, we declared a regular quarterly distribution to our common

shareholders of record on October 29, 201828, 2019 of $0.53$0.54 per share, or $87,154.$88,865. We expect to pay this amount on or about November 15, 201814, 2019 using cash on hand and borrowings under our revolving credit facility.
On June 15, 2018,February 22, 2019, we acquired the 360335 room Radisson Blu® hotelKimpton Hotel Palomar in Minneapolis, MNWashington, D.C. for a purchase price of $75,000,$141,450, excluding capitalized acquisition costs of $572,$2,292, using proceeds from our sale of the travel centers described above.
On May 7, 2019, we acquired the 198 room Crowne Plaza Milwaukee West hotel in Milwaukee, WI for a purchase price of $30,000, excluding capitalized acquisition costs of $235, using proceeds from our sale of the travel centers described above.
On August 1, 2019, we acquired a land parcel adjacent to our travel center located in Southington, CT for a purchase price of $60, excluding capitalized acquisition costs of $6, using cash on handhand. This land parcel has been added to the TA lease for that travel center.
On September 18, 2019, we issued $825,000 principal amount of our 4.35% unsecured senior notes due 2024, $450,000 principal amount of our 4.75% unsecured senior notes due 2026 and $425,000 principal amount of our 4.95% unsecured senior notes due 2029. We used the aggregate net proceedings from these offerings of $1,680,461, after underwriting discounts and other offering expenses, to finance a portion of the SMTA Transaction.
On September 20, 2019, we completed the SMTA Transaction as a result of which, we acquired 767 net lease service-oriented retail properties with 12.4 million rentable square feet. The aggregate transaction value of the SMTA Transaction was $2,482,382, including $2,384,577 in cash consideration, $82,069 of prepayment penalties to extinguish mortgage debt on the portfolio and $15,736 of other capitalized acquisition costs. The properties included in the portfolio are net leased to tenants in 23 distinct industries and 163 brands that include 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. We financed the SMTA Transaction with borrowings under our revolving credit facility.facility and with cash on hand, including net proceeds from our public offerings of senior unsecured notes, as further described above.
Also on June 15, 2018,On October 9, 2019, we acquired the 117 suite Staybridge Suites® hotel at Louisiana State University261-room Kimpton Hotel Palomar located in Baton Rouge, LAChicago, IL for a purchase price of $15,750, excluding capitalized acquisition costs of $272, using cash on hand and borrowings under our revolving credit facility.
On October 30, 2018, we acquired a hotel with 164 suites in Scottsdale, AZ for a purchase price of $35,885,$55,000, excluding acquisition related costs, using cash on handhand. We added this Kimpton® branded hotel to our management agreement with IHG.
On October 11, 2019, we entered an agreement to sell 126 net lease properties we acquired in the SMTA Transaction with approximately 2.4 million square feet in 26 states with an aggregate of $34,300 of annual minimum rents as of September 30, 2019, for an aggregate sales price of $438,000, excluding closing costs. We expect this sale to be completed prior to December 31, 2019 and to use the proceeds to reduce outstanding borrowings under our revolving credit facility.
On October 22, 2019, we sold a net lease property we acquired in the SMTA Transaction in Hermantown, MN with 103,631 square feet with annual minimum rent of $913 as of September 30, 2019 for $6,250, excluding closing costs of $46. We used the proceeds of this sale to reduce outstanding borrowings under our revolving credit facility.
On October 29, 2019, we sold a net lease office property we acquired in the SMTA Transaction in Las Vegas, NV with 138,558 square feet with annual minimum rent of $3,561 as of September 30, 2019 for $57,000, excluding closing costs. We used the proceeds of this sale to reduce outstanding borrowings under our revolving credit facility.
We have also commenced marketing certain hotels as part of our previously announced plan to sell approximately $300,000 of hotels to reduce our financial leverage. We expect to rebrand or sell the 22 hotels currently managed by Wyndham and are currently in discussions with Marriott to, amongst other things, potentially sell certain Marriott hotels.
On July 1, 2019, we sold all the shares of class A common stock of RMR Inc. we owned in an underwritten public offering at a price to the public of $40.00 per share pursuant to an underwriting agreement among us, RMR Inc., certain other REITs managed by RMR LLC that also sold their class A common stock of RMR Inc. in the offering and the underwriters named therein. We received net proceeds of $93,568 from this sale, after deducting the underwriting discounts and commissions and after other offering expenses, which we used to repay borrowings under our revolving credit facility. For more information regarding the sale of our shares of class A common stock of RMR Inc., see Note 10 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
We currently intend to continue to expand our investments by primarily acquiring additional hotels and other single tenant, net lease service-oriented based properties and we expect to use the extensive nationwide resources of RMR LLC to locate, acquire and manage such properties. One of our goals in acquiring single tenant, net lease service-oriented based properties is to further diversify our sources of rents and returns with the intention of improving the security of our cash flows. Another of

our goals is to purchase properties that produce rents, less property operating expenses, that are greater than our capital costs to acquire the properties and, accordingly, allow us to increase distributions to our shareholders over time. We expect that most of our acquisition efforts will focus on hotel and net lease based properties; however, we may consider acquiring other types of properties.
In order to fund acquisitions and 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. Our revolving credit facility and our term loan which are governed by a credit agreement with a syndicate of institutional lenders. On May 10, 2018, we amended and restated our credit agreement. As a resultThe maturity date of the amendment, the interest rate payable on borrowings under our revolving credit facility was reduced from a rate of LIBOR plus a premium of 110 basis points per annum to a rate of LIBOR plus a premium of 100 basis points per annum, and the facility fee remained unchanged at 20 basis points per annum on the total amount of lending commitments under this facility. The interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. Also as a result of the amendment, the stated maturity date of this facility was extended from July 15, 2018 tois July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further 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 100 basis points per annum at September 30, 2019, 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 20 basis points per annum at September 30, 2019. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. On October 1, 2019, the interest rate premium and facility fee increased to 1.20% and 0.25% respectively, as the result of our credit rating being lowered by a rating agency in connection with the SMTA Transaction and related financings. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of September 30, 2018,2019, the annual interest rate payable on borrowings under our revolving credit facility was 3.09%2.92%. As of September 30, 2018 and November 5, 2018,2019, we had $143,000 and $119,000, respectively,$790,000 outstanding and $857,000$210,000 available to borrow under our revolving credit facility. As of November 7, 2019, we had $700,000 amounts outstanding and $881,000, respectively,$300,000 available to borrow under our revolving credit facility.
As a result ofOur term loan, which matures on July 15, 2023, is prepayable without penalty at any time. We are required to pay interest on the amendment to our credit agreement, the interest rate payable on borrowingsamount outstanding under our term loan was reduced from aat the rate of LIBOR plus a premium, of 120which was 110 basis points per annum to aat September 30, 2019. The interest rate of LIBOR plus a premium of 110 basis points per annum,is subject to adjustment based upon changes to our credit ratings. AlsoOn October 1, 2019 the interest rate premium increased to 1.35% as a result of our credit rating being lowered by a rating agency in connection with the amendment, the stated maturity date of the term loan was extended from April 15, 2019 to July 15, 2023. Our term loan is prepayable without penalty at any time.SMTA Transaction and related financings. As of September 30, 2018,2019, the annual interest rate for the amount outstanding under our term loan was 3.20%.
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.
Our term debt maturities (other than our revolving credit facility and term loan) as of September 30, 20182019 were as follows: $400,000 in 2021, $500,000 in 2022, $500,000 in 2023, $350,000$1,175,000 in 2024, $350,000 in 2025, $350,000$800,000 in 2026, $400,000 in 2027, $400,000 in 2028, $425,000 in 2029 and $400,000 in 2030.
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 propertyasset sales and net proceeds of offerings of equity or debt securities to fund our future debt maturities, operations, capital expenditures, distributions to our shareholders, property acquisitions and other general business purposes.
When significant amounts are outstanding for an extended period of time under our revolving credit facility, or the maturities of our indebtedness approach, we currently expect to explore refinancing alternatives. Such alternatives may include incurring additional debt, issuing new equity securities and the sale of properties. We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such 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.

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, but we cannot be sure that we will be able to successfully carry out that intention.
Off Balance Sheet Arrangements
As of September 30, 2018,2019, 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 September 30, 20182019 consisted of outstanding borrowings under our $1,000,000 revolving credit facility, our $400,000 term loan and $3,650,000$5,350,000 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 a number of covenants whichthat 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 September 30, 2018,2019, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement.
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.
Management Agreements, Leases and Operating Statistics (dollar amounts in thousands)
As of September 30, 2018, 3242019, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 185 brands across 24 industries.
Hotel Portfolio
As of September 30, 2019, 327 of our hotels (including one leased hotel) were included in seven portfolio agreements and one hotel was not included in a portfolio and was leased. As of September 30, 2018,2019, our hotels were managed by or leased to separate affiliates of Marriott, InterContinental,IHG, Sonesta, Wyndham, Hyatt and Radisson under eight agreements. Our 199 travel centers are leased to and operated by TA under five portfolio agreements.

The tabletables and related notes below through page 3539 summarize significant terms of our hotel leases and management agreements as of September 30, 2018.2019. These tables also include statistics reported to us or derived from information reported to us by our hotel managers and tenants. 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 tenants’ 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 Twelve Months
    Suites (Hotels) /   Annual Ended Ended
Operating Agreement  Number of Land Acreage   Minimum September 30, September 30,
Reference Name Properties (Travel Centers) 
Investment (1)
 
Return/Rent (2)
 2018 2017 2018 2017
Marriott (No. 1) (4)  
 53
 7,609
 $699,026
 $69,409
 1.38x 1.50x 1.20x 1.26x
Marriott (No. 234) (5)    
 68
 9,120
 1,009,719
 107,110
 1.14x 1.22x 1.10x 1.12x
Marriott (No. 5) (6)    
 1
 356
 90,078
 10,321
 1.04x 1.05x 1.07x 0.84x
Subtotal / Average Marriott 122
 17,085
 1,798,823
 186,840
 1.22x 1.31x 1.13x 1.16x
InterContinental (7)  
 100
 16,354
 2,055,918
 190,521
 1.20x 1.25x 1.12x 1.14x
Sonesta (8)    
 50
 8,698
 1,641,511
 123,180
 0.69x 0.83x 0.67x 0.76x
Wyndham (9)    
 22
 3,579
 395,250
 29,126
 0.99x 1.15x 0.75x 0.83x
Hyatt (10)    
 22
 2,724
 301,942
 22,037
 0.95x 1.17x 1.08x 1.14x
Radisson (11)  
 9
 1,939
 270,101
 18,920
 1.24x 1.43x 1.02x 1.10x
Subtotal / Average Hotels   325
 50,379
 6,463,545
 570,624
 1.08x 1.18x 1.00x 1.05x
TA (No. 1) (12)    
 40
 825
 684,905
 53,431
 1.71x 1.82x 1.62x 1.58x
TA (No. 2) (13)    
 40
 957
 692,384
 54,645
 1.74x 1.70x 1.62x 1.50x
TA (No. 3) (14)    
 39
 909
 643,630
 54,653
 1.72x 1.77x 1.57x 1.50x
TA (No. 4) (15)    
 40
 1,091
 627,433
 55,186
 1.54x 1.61x 1.48x 1.41x
TA (No. 5) (16)    
 40
 1,148
 894,709
 70,294
 1.70x 1.75x 1.67x 1.56x
Subtotal / Average TA  199
 4,930
 3,543,061
 288,209
 1.68x 1.73x 1.60x 1.51x
Total / Average   524
 50,379 / 4,930
 $10,006,606
 $858,833
 1.28x 1.36x 1.20x 1.20x

Operating Agreement Reference Name Number of Properties Number of Rooms or Suites (Hotels) 
Investment (1)
 
Annual Minimum Return/Rent (2)
 
Rent / Return Coverage (3)
     Three Months Ended Twelve Months Ended
     September 30, September 30,
     2019 2018 2019 2018
Marriott (No. 1) (4)
 53
 7,609
 $722,087
 $71,714
 1.30x 1.38x 1.16x 1.20x
Marriott (No. 234) (5)
 68
 9,120
 1,030,994
 109,024
 1.06x 1.14x 1.04x 1.10x
Marriott (No. 5) (6)
 1
 356
 90,078
 10,518
 1.17x 1.04x 1.01x 1.07x
Subtotal / Average Marriott 122
 17,085
 1,843,159
 191,256
 1.16x 1.22x 1.08x 1.13x
IHG (7)
 102
 16,893
 2,267,462
 207,411
 0.88x 1.18x 0.90x 1.12x
Sonesta (8)
 51
 8,862
 1,763,319
 131,229
 0.48x 0.68x 0.58x 0.68x
Wyndham (9)
 22
 3,583
 398,964
 29,466
 0.93x 0.99x 0.58x 0.75x
Hyatt (10)
 22
 2,724
 301,942
 22,037
 0.77x 0.95x 0.90x 1.08x
Radisson (11)
 9
 1,939
 289,139
 20,442
 1.38x 1.34x 0.95x 1.10x
Total / Average Hotels 328
 51,086
 $6,863,985
 $601,841
 0.90x 1.07x 0.87x 1.01x
(1)Represents the historical cost of our hotel properties plus capital improvements funded by us less impairment writedowns,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 which are not subordinated to hotel minimum returns or rents due to us (which data is provided to us by our hotel managers or tenants), divided by the hotel minimum returns or rents due to us. Coverage amounts for our InterContinental,IHG, Sonesta and Radisson agreements and our TA No. 4 lease include data for periods prior to our ownership of certain hotel properties. Coverage amounts for our Sonesta agreement include data for one hotel prior to when it was managed by Sonesta. Coverage amounts for our Radisson agreement excludeexcludes data for certain properties we sold during the periods prior to our sale of certain hotels.presented.
(4)
We lease 53 Courtyard by Marriott® branded hotels in 24 states to one of our TRSs. The hotels are managed by a subsidiary of Marriott under a combination management agreement which expires in 2024; Marriott has two renewal options for 12 years each for all, but not less than all, of the hotels.
We have no security deposit or guarantyguarantee from Marriott for these 53 hotels. Accordingly, payment by Marriott of the minimum return due to us under this management agreement is limited to the hotels'hotels’ available cash flows after payment of operating expenses and funding of the FF&E reserve. In addition to our minimum return, this agreement provides for payment to us of 50% of the hotels'hotels’ available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve, payment of our minimum return and payment of certain management fees.
(5)
We lease 68 of our Marriott® branded hotels (one full service Marriott®, 35 Residence Inn by Marriott®, 18 Courtyard by Marriott®, 12 TownePlace Suites by Marriott® and two SpringHill Suites by Marriott® hotels) in 22 states to one of our TRSs. The hotels are managed by subsidiaries of Marriott under a combination management agreement which expires in 2025; Marriott has two renewal options for 10 years each for all, but not less than all, of the hotels.
We originally held a security deposit of $64,700 under this agreement to cover payment shortfalls of our minimum return. As of September 30, 2018,2019, the available balance of this security deposit was $33,657.$36,621. This security deposit may be replenished from a share of the hotels'hotels’ available cash flows in excess of our minimum return and certain management fees. Marriott has also provided us with a $40,000 limited guaranty to cover payment shortfalls up to 90% of our minimum return after the available security deposit balance has been depleted, whichdepleted. This limited guaranty expires inon December 31, 2019. As of September 30, 2018,2019, the available Marriott guaranty was $30,672.
In addition to our minimum return, this agreement provides for payment to us of 62.5% of the hotels'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 and replenishment of the security deposit. This additional return amount is not guaranteed or secured by the security deposit.
(6)
We lease one Marriott® branded hotel in Kauai, HI to a subsidiary of Marriott under a lease that expires in 2019. Marriott has four renewal options for 15 years each. On August 31, 2016, Marriott notified us that it will not exercise its renewal option at the expiration of the current lease term ending on December 31, 2019. This lease is guaranteed by Marriott and provides for increases in the annual minimum rent payable to us based on changes in the consumer price index.

(7)
We lease 99 InterContinental101 IHG branded hotels (20 Staybridge Suites®, 61 Candlewood Suites®, two InterContinental®, 1011 Crowne Plaza®, four Kimpton® Hotels & Restaurants and three Holiday Inn® and three Kimpton®Hotels & Restaurants)) in 2930 states in the U.S., the District of Columbia and Ontario, Canada to one of our TRSs. These 99101 hotels are managed by subsidiaries of InterContinentalIHG under a combination management agreement. We lease one additional InterContinental® branded hotel in Puerto Rico to a subsidiary of InterContinental.IHG. The annual minimum return amount presented in the table on page 3238 includes $7,912$7,908 of minimum rent related to the leased Puerto Rico hotel. The management agreement and the lease expire in 2036; InterContinentalIHG has two renewal options for 15 years each for all, but not less than all, of the hotels.
As ofSeptember 30, 2018,2019, we held a security deposit of $100,000$85,741 under this agreement to cover payment shortfalls of our minimum return. This security deposit, if utilized, may be replenished and increased up to $100,000 from the hotels'hotels’ available cash flows in excess of our minimum return and certain management fees. Under this agreement, InterContinentalIHG is required to maintain a minimum security deposit of $37,000.
In addition to our minimum return, this management agreement provides for an annual additional return payment to us of $12,067 from the hotels'hotels’ available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve, if any, payment of our minimum return, payment of certain management fees and replenishment and expansion of the security deposit. In addition, the agreement provides for payment to us of 50% of the hotels'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 hold.
(8)
We lease our 5051 Sonesta branded hotels (six Royal Sonesta® Hotels, fivesix Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states to one 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 the 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'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'hotels’ available cash flows after payment of hotel operating expenses, management fees to Sonesta, our minimum return, an imputed FF&E reserve to us and reimbursement of operating loss or working capital advances, if any.
(9)
We lease our 22 Wyndham branded hotels (six Wyndham Hotels and Resorts® and 16 Hawthorn Suites® hotels) in 14 states to one of our TRSs. The hotels are managed by a subsidiarysubsidiaries of Wyndham under a combination management agreement which expires in 2038; Wyndham has two renewal options for 15 years each for all, but not less than all, of the hotels.
We have a limited guaranty of $35,656 under the management agreement to cover payment shortfalls of our minimum return, subject to an annual payment limit of $17,828. This guaranty expires in 2020. As of September 30, 2018,2019, the Wyndham guaranty was depleted. This guaranty may be replenished from the hotels' available cash flows in excess of our minimum return. This agreement provides that if the hotel cash flows available after payment of hotel operating expenses are less than the minimum returns due to us and if the guaranty is depleted, to avoid a default, Wyndham is required to pay us the greater of the available hotels'hotel cash flows after payment of hotel operating expenses and 85% of our minimum return.
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 hotel operating expenses, payment of our minimum return, funding of the FF&E reserve, if any, payment of certain management fees and reimbursement of any Wyndham guaranty advances. This additional return amount is not guaranteed.
We also lease 48 vacation units in one of the hotels to Destinations under a lease that expires in 2037; Destinations has two renewal options for 15 years each for all, but not less than all, of the vacation units. The lease is guaranteed by Destinations and provides for rent increases of 3% per annum. The annual minimum return amount presented in the table on page 3239 includes $1,449$1,493 of minimum rent related to the Destinations lease.
(10)
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 ofSeptember 30, 2018,2019, the available Hyatt guaranty was $23,521.$21,346. The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels'hotels’ available cash flows in excess of our minimum return.
In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels'hotels’ available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return and reimbursement to Hyatt of working capital and guaranty advances, if any. This additional return is not guaranteed.
(11)
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 $46,000$47,523 under this agreement to cover payment shortfalls of our minimum return. As ofSeptember 30, 2018,2019, the available Radisson guaranty was $43,563.$42,466. The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels'hotels’ available cash flows in excess of our minimum return. Also, this guaranty cap may be increased if we fund excess renovation costs under our agreement with Radisson.
In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels'hotels’ available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return and reimbursement to Radisson of working capital and guaranty advances, if any. This additional return is not guaranteed.

(12)
We lease 40 travel centers (36 TravelCenters of America® branded travel centers and four Petro Stopping Centers® branded travel centers) in 29 states to a subsidiary of TA under a lease that expires in 2029; TA has two renewal options for 15 years each for all, but not less than all, of these travel centers. In addition to the payment of our minimum rent, this lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels (3% of non-fuel revenues above 2015 non-fuel revenues). TA’s previously deferred rent of $27,421 is due at the expiration of the initial term of this lease. This lease is guaranteed by TA.
(13)
We lease 40 travel centers (38 TravelCenters of America® branded travel centers and two Petro Stopping Centers®branded travel centers) in 27 states to a subsidiary of TA under a lease that expires in 2028; TA has two renewal options for 15 years each for all, but not less than all, of these travel centers. In addition to the payment of our minimum rent, this lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels (3% of non-fuel revenues above 2015 non-fuel revenues). TA’s previously deferred rent of $29,107 is due at the expiration of the initial term of this lease. This lease is guaranteed by TA.
(14)
We lease 39 travel centers (38 TravelCenters of America® branded travel centers and one Petro Stopping Centers® branded travel center) in 29 states to a subsidiary of TA under a lease that expires in 2026; TA has two renewal options for 15 years each for all, but not less than all, of these travel centers. In addition to the payment of our minimum rent, this lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels (3% of non-fuel revenues above 2015 non-fuel revenues). TA’s previously deferred rent of $29,324 is due at the expiration of the initial term of this lease. This lease is guaranteed by TA.
(15)
We lease 40 travel centers (37 TravelCenters of America® branded travel centers and three Petro Stopping Centers® branded travel centers) in 28 states to a subsidiary of TA under a lease that expires in 2030; TA has two renewal options for 15 years each for all, but not less than all, of these travel centers. In addition to the payment of our minimum rent, this lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels (3% of non-fuel revenues above 2015 non-fuel revenues). TA’s previously deferred rent of $21,233 is due at the expiration of the initial term of this lease. This lease is guaranteed by TA.
(16)
We lease 40 Petro Stopping Centers® branded travel centers in 25 states to a subsidiary of TA under a lease that expires in 2032; TA has two renewal options for 15 years each for all, but not less than all, of these travel centers. In addition to the payment of our minimum rent, this lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels (3% of non-fuel revenues above 2012 non-fuel revenues).  TA’s previously deferred rent of $42,915 is due on June 30, 2024. This lease is guaranteed by TA.


The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenants by management agreement or lease for the periods indicated. All operating data presented are based upon the operating results provided by our managers and tenants for the indicated periods. We have not independently verified our hotel managers’ or tenants’ operating data.
 No. of  No. of Rooms / Three Months Ended September 30, Nine Months Ended September 30, No. of No. of Rooms / Three Months Ended September 30, Nine Months Ended September 30,
 Hotels Suites 2018 2017 Change 2018 2017 Change Hotels Suites 2019 2018 Change 2019 2018 Change
ADR  
  
  
  
  
  
  
  
                
Marriott (No. 1)  53
 7,609
 $132.67
 $131.54
 0.9% $132.19
 $131.82
 0.3% 53
 7,609
 $132.70
 $132.67
 % $134.27
 $132.19
 1.6%
Marriott (No. 234)  68
 9,120
 134.75
 133.48
 1.0% 134.05
 132.57
 1.1% 68
 9,120
 132.40
 134.75
 (1.7%) 134.44
 134.05
 0.3%
Marriott (No. 5)  1
 356
 301.59
 272.72
 10.6% 290.71
 268.89
 8.1% 1
 356
 308.12
 301.59
 2.2% 304.95
 290.71
 4.9%
Subtotal / Average Marriott  122
 17,085
 137.88
 136.08
 1.3% 137.32
 135.65
 1.2% 122
 17,085
 136.82
 137.88
 (0.8%) 138.67
 137.32
 1.0%
InterContinental (1)
 100
 16,354
 123.03
 120.62
 2.0% 123.88
 119.83
 3.4%
IHG (1)
 102
 16,893
 120.44
 123.97
 (2.8%) 122.04
 125.37
 (2.7%)
Sonesta (1) (2)
 50
 8,698
 146.87
 144.66
 1.5% 148.34
 146.54
 1.2% 51
 8,862
 140.45
 146.63
 (4.2%) 147.47
 149.31
 (1.2%)
Wyndham 22
 3,579
 103.40
 104.90
 (1.4%) 100.96
 100.81
 0.1% 22
 3,583
 100.63
 103.40
 (2.7%) 97.67
 100.96
 (3.3%)
Hyatt  22
 2,724
 109.34
 108.48
 0.8% 112.64
 110.09
 2.3% 22
 2,724
 105.76
 109.34
 (3.3%) 109.67
 112.64
 (2.6%)
Radisson (1) (3)
 9
 1,939
 141.16
 137.75
 2.5% 134.29
 131.45
 2.2%
Radisson (1)
 9
 1,939
 141.65
 141.16
 0.3% 136.66
 134.29
 1.8%
All Hotels Total / Average 325
 50,379
 $130.42
 $128.55
 1.5% $130.49
 $128.02
 1.9% 328
 51,086
 $127.82
 $130.68
 (2.2%) $129.91
 $131.15
 (0.9%)
                
OCCUPANCY  
  
  
  
  
  
  
  
                
Marriott (No. 1)  53
 7,609
 72.5% 74.2% -1.7 pts
 70.1% 70.5% -0.4 pts
 53
 7,609
 73.1% 72.5% 0.6 pts
 68.8% 70.1% -1.3 pts
Marriott (No. 234)  68
 9,120
 76.7% 77.4% -0.7 pts
 76.2% 76.8% -0.6 pts
 68
 9,120
 77.4% 76.7% 0.7 pts
 74.9% 76.2% -1.3 pts
Marriott (No. 5)  1
 356
 87.0% 90.4% -3.4 pts
 91.7% 88.7% 3.0 pts
 1
 356
 88.6% 87.0% 1.6 pts
 87.7% 91.7% -4.0 pts
Subtotal / Average Marriott  122
 17,085
 75.1% 76.3% -1.2 pts
 73.8% 74.2% -0.4 pts
 122
 17,085
 75.7% 75.1% 0.6 pts
 72.4% 73.8% -1.4 pts
InterContinental (1)
 100
 16,354
 81.9% 84.8% -2.9 pts
 80.0% 82.3% -2.3 pts
IHG (1)
 102
 16,893
 79.8% 82.0% -2.2 pts
 77.7% 80.0% -2.3 pts
Sonesta (1) (2)
 50
 8,698
 72.4% 75.4% -3.0 pts
 69.2% 72.5% -3.3 pts
 51
 8,862
 73.8% 72.3% 1.5 pts
 70.0% 69.2% 0.8 pts
Wyndham 22
 3,579
 72.3% 75.4% -3.1 pts
 69.6% 71.6% -2.0 pts
 22
 3,583
 74.5% 72.3% 2.2 pts
 69.4% 69.6% -0.2 pts
Hyatt  22
 2,724
 80.1% 84.4% -4.3 pts
 80.5% 83.5% -3.0 pts
 22
 2,724
 79.4% 80.1% -0.7 pts
 78.9% 80.5% -1.6 pts
Radisson (1) (3)
 9
 1,939
 75.4% 80.0% -4.6 pts
 74.6% 77.0% -2.4 pts
Radisson (1)
 9
 1,939
 79.5% 75.4% 4.1 pts
 72.7% 74.6% -1.9 pts
All Hotels Total / Average 325
 50,379
 76.9% 79.4% -2.5 pts
 75.1% 76.9% -1.8 pts
 328
 51,086
 77.0% 77.0% 0.0 pts
 73.9% 75.1% -1.2 pts
                
RevPAR  
  
  
  
  
  
  
  
                
Marriott (No. 1)  53
 7,609
 $96.19
 $97.60
 (1.4%) $92.67
 $92.93
 (0.3%) 53
 7,609
 $97.00
 $96.19
 0.8% $92.38
 $92.67
 (0.3%)
Marriott (No. 234)  68
 9,120
 103.35
 103.31
 % 102.15
 101.81
 0.3% 68
 9,120
 102.48
 103.35
 (0.8%) 100.70
 102.15
 (1.4%)
Marriott (No. 5)  1
 356
 262.38
 246.54
 6.4% 266.58
 238.51
 11.8% 1
 356
 272.99
 262.38
 4.0% 267.44
 266.58
 0.3%
Subtotal / Average Marriott  122
 17,085
 103.55
 103.83
 (0.3%) 101.34
 100.65
 0.7% 122
 17,085
 103.57
 103.55
 % 100.40
 101.34
 (0.9%)
InterContinental (1)
 100
 16,354
 100.76
 102.29
 (1.5%) 99.10
 98.62
 0.5%
IHG (1)
 102
 16,893
 96.11
 101.66
 (5.5%) 94.83
 100.30
 (5.5%)
Sonesta (1) (2)
 50
 8,698
 106.33
 109.07
 (2.5%) 102.65
 106.24
 (3.4%) 51
 8,862
 103.65
 106.01
 (2.2%) 103.23
 103.32
 (0.1%)
Wyndham 22
 3,579
 74.76
 79.09
 (5.5%) 70.27
 72.18
 (2.6%) 22
 3,583
 74.97
 74.76
 0.3% 67.78
 70.27
 (3.5%)
Hyatt  22
 2,724
 87.58
 91.56
 (4.3%) 90.68
 91.93
 (1.4%) 22
 2,724
 83.97
 87.58
 (4.1%) 86.53
 90.68
 (4.6%)
Radisson (1) (3)
 9
 1,939
 106.43
 110.20
 (3.4%) 100.18
 101.22
 (1.0%)
Radisson (1)
 9
 1,939
 112.61
 106.43
 5.8% 99.35
 100.18
 (0.8%)
All Hotels Total / Average 325
 50,379
 $100.29
 $102.07
 (1.7%) $98.00
 $98.45
 (0.5%) 328
 51,086
 $98.42
 $100.62
 (2.2%) $96.00
 $98.49
 (2.5%)
(1)Operating data includes data for certain hotels for periods prior to when we acquired them.
(2)Operating data includes data for one hotel prior to when it was managed by Sonesta.
Net Lease Portfolio
As of September 30, 2019, our 946 net lease properties located in 45 states were leased to 279 tenants. These tenants operate in 23 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 5 lease agreements that expire between 2029 and 2035 and require annual minimum rents of $246,088, which represents approximately 24.1% of our total minimum returns and rent as of September 30, 2019.

As of September 30, 2019, our net lease tenants operated across more than 160 brands. The following table identifies the top ten brands.
 Brand No. of Buildings 
Investment (1) (2)
 Percent of Total Investment 
Annualized
Minimum Rent (2)
 
Percent of Total Annualized
Minimum Rent (2) (3)
 
Coverage (4)
              
1.TravelCenters of America 134 $2,281,589
 39.3% $167,990
 40.1% 1.95x
2.Petro Stopping Centers 45 1,021,227
 17.7% 78,099
 18.7% 1.62x
3.AMC Theatres 14 123,554
 2.1% 10,725
 2.6% 1.36x
4.The Great Escape 14 98,242
 1.7% 7,140
 1.7% 4.12x
5.Creme de la Creme 9 68,712
 1.2% 5,811
 1.4% 1.84x
6.Goodrich Quality Theaters 4 59,743
 1.0% 5,396
 1.3% 1.48x
7.Life Time Fitness 3 92,617
 1.6% 5,246
 1.3% 3.56x
8.Casual Male 1 69,973
 1.2% 5,221
 1.2% 1.24x
9.Buehler's Fresh Foods 5 76,536
 1.3% 5,143
 1.2% 2.22x
10.CarMax 4 66,119
 1.1% 4,878
 1.2% 2.51x
11.
Other (5)
 713 1,826,885
 31.8% 122,986
 29.3% 3.15x
 Total 946 $5,785,197
 100.0% $418,635
 100.0% 2.27x
(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)Operating data excludesAs of September 30, 2019, we have 148 net lease properties with a carrying value of $604,989 and annual minimum rent of $43,081 classified as held for sale.
(4)See page 39 for our definition of coverage. Coverage amounts include data for certain hotelsproperties for periods prior to when we assumed ownership of them.
(5)Other includes 153 distinct brands with an average investment of $11,940 and average annual minimum rent of $804.

As of September 30, 2019, our top 10 net lease tenants are listed below.
 Tenant Brand Affiliation No. of Buildings 
Investment (1) (2)
 Percent of Total Investment 
Annualized
Minimum Rent (2) (3)
 
Percent of Total Annualized
Minimum Rent
 
Coverage (4)
 
                 
1.TravelCenters of America Inc. TravelCenters of America / Petro Stopping Centers 179 $3,302,816
 57.0% $246,088
 58.7% 1.84x
(5) (6) 
2.Universal Pool Co., Inc. The Great Escape 14 98,242
 1.7% 7,140
 1.7% 4.12x 
3.Creme De La Creme, Inc. Creme De La Creme 9 68,712
 1.2% 5,811
 1.4% 1.84x
(5) 
4.Goodrich Quality Theaters, Inc. Goodrich Quality Theaters 4 59,743
 1.0% 5,396
 1.3% 1.48x 
5.Healthy Way of Life II, LLC Life Time Fitness 3 92,617
 1.6% 5,246
 1.3% 3.56x
(5) 
6.Destination XL Group, Inc. Casual Male 1 69,973
 1.2% 5,221
 1.2% 1.24x 
7.Styx Acquisition, LLC Buehler's Fresh Foods 5 76,536
 1.3% 5,143
 1.2% 2.22x 
8.Professional Resource Development, Inc. Heartland Dental 59 61,120
 1.1% 4,427
 1.1% 3.50x 
9.
Station Casinos, Inc. (7)
 Station Casino 1 56,083
 1.0% 3,561
 0.9% 3.00x 
10.Express Oil Change, L.L.C. Express Oil Change 23 49,724
 0.9% 3,379
 0.8% 3.62x 
 Subtotal, top 10   298 3,935,566
 68.0% 291,412
 69.6% 1.88x 
11.
Other (8)
 Various 648 1,849,631
 32.0% 127,223
 30.4% 2.95x 
 Total   946 $5,785,197
 100.0% $418,635
 100.0% 2.27x 
(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 September 30, 2019, we have 148 net lease properties with a carrying value of $604,989 and annual minimum rent of $43,081 classified as held for sale.
(4)See page 39 for our definition of coverage. Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.
(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). Commencing in 2020, 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 $61,650 is being paid in quarterly installments of $4,404 through January 31, 2023.
(7)On October 29, 2019, we sold during the periods presented.a net lease office property in Las Vegas, NV with 138,558 square feet with annual minimum rent of $3,561 as of September 30, 2019 for $57,000, excluding closing costs.
(8)Other includes 270 tenants with an average investment of $6,850 and average annual minimum rent of $470.

As of September 30, 2019, our net lease tenants operated across 23 distinct industries within the service-oriented retail sector of the U.S. economy.
Industry No. of Buildings 
Investment (1) (2)
 Percent of Total Investment 
Annualized
Minimum Rent (2) (3)
 
Percent of Total Annualized
Minimum Rent
 
Coverage (4)
             
 Travel Centers 182 $3,344,497
 58.0% $249,209
 59.4% 1.85x
 Restaurants-Quick Service 301 382,275
 6.6% 25,473
 6.1% 2.27x
 Movie Theaters 29 271,441
 4.7% 23,479
 5.6% 1.51x
 Restaurants-Casual Dining 87 302,734
 5.2% 19,095
 4.6% 2.56x
 Health and Fitness 17 208,975
 3.6% 12,704
 3.0% 2.40x
 Miscellaneous Retail 21 129,364
 2.2% 9,986
 2.4% 3.49x
 Medical/Dental Office 79 127,973
 2.2% 8,886
 2.1% 4.98x
 Automotive Parts and Service 73 126,263
 2.2% 8,719
 2.1% 2.75x
 Grocery 19 129,219
 2.2% 8,587
 2.1% 2.99x
 Automotive Dealers 12 110,059
 1.9% 8,176
 2.0% 3.65x
 Educational Services 14 95,227
 1.6% 7,677
 1.8% 1.46x
 Home Furnishings 18 123,653
 2.1% 7,549
 1.8% 2.69x
 Apparel 3 82,284
 1.4% 6,086
 1.5% 1.57x
 Other 3 64,366
 1.1% 5,001
 1.2% 2.47x
 Entertainment 4 61,436
 1.1% 4,222
 1.0% 1.97x
 Sporting Goods 3 52,022
 0.9% 3,481
 0.8% 2.82x
 Miscellaneous Manufacturing 7 32,873
 0.6% 2,402
 0.6% 25.28x
 Car Washes 6 32,028
 0.6% 2,319
 0.6% 4.56x
 Building Materials 28 31,124
 0.5% 2,124
 0.5% 3.15x
 Drug Stores and Pharmacies 8 23,970
 0.4% 1,646
 0.4% 1.79x
 Legal Services 5 11,362
 0.2% 974
 0.2% 1.47x
 General Merchandise 3 7,492
 0.1% 555
 0.1% 3.27x
 Dollar Stores 5 7,196
 0.1% 285
 0.1% 2.89x
 Vacant 19 27,364
 0.5% 
 % N/A
Total 946 $5,785,197
 100.0% $418,635
 100.0% 2.27x
(1)Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.
(2)As of September 30, 2019, we have 148 net lease properties with a carrying value of $604,989 and annual minimum rent of $43,081 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 39 for our definition of coverage. Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.


As shown below, approximately 0.3% of total net lease rented square feet and total net lease annualized minimum rents are from leases scheduled to expire by December 31, 2019. As of September 30, 2019, lease expirations at our net lease properties by year are as follows.
      Percent of Total Cumulative % of
  Square Annualized Minimum Annualized Minimum Total Minimum
Year(1)
 Feet 
Rent Expiring (2)
 Rent Expiring Rent Expiring
         
2019 215,102
 $1,313
 0.3% 0.3%
2020 482,492
 6,799
 1.6% 1.9%
2021 708,121
 9,398
 2.2% 4.1%
2022 1,071,820
 12,408
 3.0% 7.1%
2023 371,812
 4,200
 1.0% 8.1%
2024 773,833
 11,924
 2.8% 10.9%
2025 496,061
 11,995
 2.9% 13.8%
2026 1,805,166
 17,702
 4.2% 18.0%
2027 1,903,833
 24,643
 5.9% 23.9%
2028 796,385
 13,838
 3.3% 27.2%
2029 1,590,922
 50,122
 12.0% 39.2%
2030 201,492
 4,443
 1.1% 40.3%
2031 1,405,662
 50,535
 12.1% 52.4%
2032 1,230,829
 50,182
 12.0% 64.4%
2033 1,217,338
 52,466
 12.5% 76.9%
2034 399,368
 11,903
 2.8% 79.7%
2035 2,241,467
 79,995
 19.1% 98.8%
2036 274,141
 3,854
 1.0% 99.8%
2037 
 
 0.0% —%
2038 10,183
 409
 0.1% 99.9%
2039 40,334
 438
 0.1% 100.0%
2040 1,739
 68
 0.0% 100.0%
Total 17,238,100
 $418,635
 100.0%  
(1)The year of lease expiration is pursuant to contract terms.
(2)As of September 30, 2019, we have 148 net lease properties with a carrying value of $604,989 and annual minimum rent of $43,081 classified as held for sale.


As of September 30, 2019, shown below is the list of our top 20 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
  Square Annualized Minimum Annualized Minimum
State Feet Rent Rent
       
Texas 1,551,655
 $34,599
 8.3%
Illinois 1,174,051
 30,775
 7.4%
Ohio 1,449,126
 27,697
 6.6%
California 399,045
 23,230
 5.5%
Georgia 716,878
 22,202
 5.3%
Indiana 762,556
 21,057
 5.0%
Arizona 543,972
 17,587
 4.2%
Florida 562,324
 16,224
 3.9%
Pennsylvania 642,533
 15,441
 3.7%
Nevada 328,820
 13,165
 3.1%
Michigan 715,471
 11,692
 2.8%
New Mexico 246,478
 10,982
 2.6%
Tennessee 293,543
 10,965
 2.6%
Missouri 532,849
 10,757
 2.6%
South Carolina 418,883
 10,003
 2.4%
New York 234,464
 9,220
 2.2%
Colorado 370,532
 9,068
 2.2%
North Carolina 474,095
 8,785
 2.1%
Alabama 228,722
 8,694
 2.1%
Arkansas 436,134
 8,386
 2.0%
Other 5,481,328
 98,106
 23.4%
Total 17,563,459
 $418,635
 100.0%



Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. and others related to 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 D. Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, andan 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. and an officer and employee of RMR LLC; John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC; and, until July 1, 2019, we ownowned shares of class A common stock of RMR Inc. 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., including: TA, which is our former subsidiary and largest tenant and of which we are the largest shareholder; and Sonesta, which is one of our hotel managers and is owned in part by Adam D. Portnoy, one of our Managing Trustees; and AIC, of which we, ABP Trust, TA and four other companies to which RMR LLC provides management services each own 14.3% and which arranges and reinsures in part a combined property insurance program for us and its six other shareholders. Portnoy.
For further information about these and other such relationships and related person transactions, see Notes 7, 8, 9 and 10 to the Notesour to Condensed Consolidated Financial Statementscondensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 20172018 Annual Report, our definitive Proxy Statement for our 20182019 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, see the section captioned “Risk Factors” of our 20172018 Annual Report and other filings with the SEC 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, and our shareholders agreement with AIC and its six other shareholders, 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
Funds From Operations Available for Common Shareholders and Normalized Funds From Operations Available for Common Shareholders.
We calculatepresent certain “non-GAAP financial measures” within the meaning of applicable SEC rules, including funds from operations, or FFO, available for common shareholders 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 as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income as presented in our condensed consolidated statements of income. 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 available for common shareholdersand Normalized FFO, as shown below. FFO available for common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is net income, available for common shareholders 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. Our calculation ofIn calculating Normalized FFO, availablewe adjust for common shareholders differs from Nareit's definition of FFO available for common shareholders because wethe item shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as 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, and we exclude the loss on early extinguishment of debt, excess of liquidation preference over carrying value of preferred shares redeemed and unrealized gains on equity securities. We consideryear. FFO available for common shareholders and Normalized FFO available for common shareholders to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income available for common shareholders. We believe that FFO available for common shareholders and Normalized FFO available for common shareholders provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO available for common shareholders and Normalized FFO available for common shareholders may facilitate a comparison of our operating performance between periods and with other REITs. FFO available for common shareholders and Normalized FFO available for common shareholders 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. FFO available for common shareholders and Normalized FFO available for common shareholders do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income available for common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and net income available for common shareholders as presented in our condensed consolidated statements of comprehensive income. Other real estate companies and REITs may calculate FFO available for common shareholders and Normalized FFO available for common shareholders differently than we do.

Our calculations of FFO available for common shareholders and Normalized FFO available for common shareholders for the three and nine months ended September 30, 20182019 and 20172018 and reconciliations of net income, available for common shareholders, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

 For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017 2019 2018 2019 2018
Net income available for common shareholders  $117,099
 $85,728
 $294,594
 $172,270
Add (Less):Depreciation and amortization expense  101,007
 98,205
 300,308
 286,811
Gain on sale of real estate (1)
 
 (9,348) 
 (9,348)
FFO available for common shareholders 218,106
 174,585
 594,902
 449,733
Net incomeNet income $40,074
 $117,099
 $274,643
 $294,594
Add (Less):
Estimated business management incentive fees (2)
 
 873
 
 38,243
Depreciation and amortization expense 103,160
 101,007
 301,721
 300,308
Loss on early extinguishment of debt (3)
 
 
 160
 
Gain on sale of real estate (1)
 
 
 (159,535) 
Excess of liquidation preference over carrying value of preferred shares redeemed (4)
 
 
 
 9,893
Unrealized (gains) and losses on equity securities, net (2)
 3,950
 (43,453) 43,761
 (89,348)
Unrealized gains on equity securities (5)
 (43,453) 
 (89,348) 
Normalized FFO available for common shareholders $174,653
 $175,458
 $505,714
 $497,869
FFOFFO 147,184
 174,653
 460,590

505,554
Add:
Loss on early extinguishment of debt (3)
 8,451
 
 8,451
 160
Normalized FFONormalized FFO $155,635
 $174,653
 $469,041
 $505,714
                
Weighted average shares outstanding (basic) 164,232
 164,149
 164,212
 164,131
Weighted average shares outstanding (basic) 164,321
 164,232
 164,294
 164,212
Weighted average shares outstanding (diluted) (6)
 164,274
 164,188
 164,242
 164,168
Weighted average shares outstanding (diluted) (4)
 164,348
 164,274
 164,332
 164,242
                
Basic and diluted per common share amounts:Basic and diluted per common share amounts:        Basic and diluted per common share amounts:        
Net income available for common shareholders $0.71
 $0.52
 $1.79
 $1.05
Net income $0.24
 $0.71
 $1.67
 $1.79
FFO available for common shareholders $1.33
 $1.06
 $3.62
 $2.74
FFO $0.90
 $1.06
 $2.80
 $3.08
Normalized FFO available for common shareholders $1.06
 $1.07
 $3.08
 $3.03
Normalized FFO $0.95
 $1.06
 $2.85
 $3.08
Distributions declared per share  $0.53
 $0.52
 $1.58
 $1.55
Distributions declared per share $0.54
 $0.53
 $1.61
 $1.58
(1)
We recorded a $9,348 $159,535gain on sale of real estate during the three months ended September 30, 2017March 31, 2019 in connection with the sales of three hotels.20 travel centers.
(2)Incentive fees under our business management agreement with RMR LLC are payable after the end of each calendar year, are calculated based on common share total return, as defined,Unrealized gains and are included in general and administrative expense in our condensed consolidated statements of comprehensive income. In calculating net income in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income, we do not include these amounts in the calculation of Normalized FFO available for common shareholders until the fourth quarter, which is when the business management incentive fee expense amount for the year, if any, is determined. Incentive fees for 2018, if any, will be paid in cash in January 2019.
(3)We recorded a loss of $160 on early extinguishment of debt in the three months ended June 30, 2018 in connection with the amendment of our revolving credit facility and term loan.
(4)In February 2017, we redeemed all 11,600,000 of our outstanding 7.125% Series D cumulative redeemable preferred shares at the stated liquidation preference of $25.00 per share plus accrued and unpaid distributions to the date of redemption (an aggregate of $291,435). The liquidation preference of the redeemed shares exceeded the carrying amount for the redeemed shares as of the date of redemption by $9,893, or $0.06 per share, and we reduced net income available to common shareholders in the three months ended March 31, 2017 by that excess amount.
(5)Unrealized gainslosses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in RMR Inc. and TA common shares to their fair value as of September 30, 2018 in accordance with new GAAP standards effective Januarythe end of the period. We sold our shares of RMR Inc. on July 1, 2018.2019.
(6)(3)
We recorded a loss of $8,451on early extinguishment of debt in the three months ended September 30, 2019 related to the termination of a term loan commitment we arranged in connection with the SMTA Transaction. We recorded a loss of $160 on early extinguishment of debt in the three months ended June 30, 2018 in connection with amending our revolving credit facility and term loan.
(4)Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards.

Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands, except per share amounts)
We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, 2017.2018. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.
Fixed Rate Debt

At September 30, 2018,2019, our outstanding publicly tradable debt consisted of nine12 issues of fixed rate, senior notes:
Principal BalancePrincipal Balance 
Annual Interest
Rate
 
Annual Interest
Expense
 Maturity 
Interest Payments
Due
Principal Balance 
Annual Interest
Rate
 
Annual Interest
Expense
 Maturity 
Interest Payments
Due
$400,000
 4.250% $17,000
 2021 Semi-Annually400,000
 4.250% $17,000
 2021 Semi-Annually
500,000500,000
 5.000% 25,000
 2022 Semi-Annually500,000
 5.000% 25,000
 2022 Semi-Annually
500,000500,000
 4.500% 22,500
 2023 Semi-Annually500,000
 4.500% 22,500
 2023 Semi-Annually
350,000350,000
 4.650% 16,275
 2024 Semi-Annually350,000
 4.650% 16,275
 2024 Semi-Annually
825,000825,000
 4.350% 35,888
 2024 Semi-Annually
350,000350,000
 4.500% 15,750
 2025 Semi-Annually350,000
 4.500% 15,750
 2025 Semi-Annually
350,000350,000
 5.250% 18,375
 2026 Semi-Annually350,000
 5.250% 18,375
 2026 Semi-Annually
450,000450,000
 4.750% 21,375
 2026 Semi-Annually
400,000400,000
 4.950% 19,800
 2027 Semi-Annually400,000
 4.950% 19,800
 2027 Semi-Annually
400,000400,000
 3.950% 15,800
 2028 Semi-Annually400,000
 3.950% 15,800
 2028 Semi-Annually
425,000425,000
 4.950% 21,038
 2029 Semi-Annually
400,000400,000
 4.375% 17,500
 2030 Semi-Annually400,000
 4.375% 17,500
 2030 Semi-Annually
$3,650,000
  
 $168,000
    5,350,000
   $246,301
 

No principal repayments are due under these notes until maturity. Because these notes require interest at fixed rates, changes in market interest rates during the term of these debts will not affect our interest obligations. If these notes were refinanced at interest rates which are one percentage point higher than the rates shown above, our per annum interest cost would increase by approximately $36,500.$53,500. Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at September 30, 20182019 and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in interest rates would change the fair value of those debt obligations by approximately $185,079.

$253,614.
Each of these fixed rate unsecured debt arrangements allows us to make repayments earlier than the stated maturity date. We are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder. Also, we have in the past repurchased and retired some of our outstanding debts and we may do so again in the future. These prepayment rights and our ability to repurchase and retire outstanding debt may afford us opportunities to mitigate the risks of refinancing our debts at their maturities at higher rates by refinancing prior to maturity.
Floating Rate Debt
At September 30, 2018,2019, our floating rate debt consisted of $143,000$790,000 outstanding under our $1,000,000 revolving credit facility and our $400,000 term loan. On May 10, 2018, we amended and restated our credit agreement. The stated maturity date of our revolving credit facility is July 15, 2022, and subject to our meeting certain conditions, including our payment of an extension fee, we have an option to further extend the stated maturity date of the facility for two additional six month periods. The maturity date of our term loan is July 15, 2023. No principal repayments are required under our revolving credit facility prior to maturity, and repayments may be made and redrawn subject to conditions at any time without penalty. No principal prepayments are required under our term loan prior to maturity and we can repay principal amounts outstanding under the term loan subject to conditions at any time without penalty, but after amounts outstanding under our term loan are repaid, amounts may not be redrawn. Borrowings under our revolving credit facility and term loan are in U.S. dollars and require annual interest to be paid at the rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically LIBOR.LIBOR, and to changes in our credit ratings. In addition, upon renewal or refinancing of our revolving credit facility or our term loan, we are vulnerable to increases in interest rate premiums due to market conditions or

our perceived credit characteristics. Generally, a change in interest rates would not affect the value of this floating rate debt but would affect our operating results.
The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, 2018:2019:
 Impact of Increase in Interest Rates   Impact of Increase in Interest Rates  
 
Interest Rate
Per Year (1)
 
Outstanding
Debt
 
Total Interest
Expense Per Year
 
Annual Per Common
Share Impact (2)
 
Interest Rate
Per Year (1)
 
Outstanding
Debt
 
Total Interest
Expense Per Year
 
Annual Per
Share Impact (2)
At September 30, 2018 3.18% $543,000
 $17,267
 $0.11
At September 30, 2019 3.02% $1,190,000
 $35,938
 $0.22
One percentage point increase 4.18% $543,000
 $22,697
 $0.14
 4.02% $1,190,000
 $47,838
 $0.29

(1)Weighted average based on the interest rates and the respective outstanding borrowings as of September 30, 2018.2019.
(2)Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2018.2019.
The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at September 30, 20182019 if we were fully drawn on our revolving credit facility and our $400,000 term loan remained outstanding:
 Impact of Increase in Interest Rates   Impact of Increase in Interest Rates  
 
Interest Rate
Per Year (1)
 
Outstanding
Debt
 
Total Interest
Expense Per Year
 
Annual Per Common
Share Impact (2)
 
Interest Rate
Per Year (1)
 
Outstanding
Debt
 
Total Interest
Expense Per Year
 
Annual Per
Share Impact (2)
At September 30, 2018 3.13% $1,400,000
 $43,820
 $0.27
At September 30, 2019 2.99% $1,400,000
 $41,860
 $0.25
One percentage point increase 4.13% $1,400,000
 $57,820
 $0.35
 3.99% $1,400,000
 $55,860
 $0.34
(1)Weighted average based on the interest rates and the respective outstanding borrowings (assuming fully drawn) as of September 30, 2018.2019.
(2)Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2018.2019.
The foregoing tables show the impact of an immediate increase in floating interest rates as of September 30, 2018.2019. If interest rates were to increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts under our revolving credit facility and term loan or other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.
LIBOR Phase Out
LIBOR is currently expected to be phased out in 2021. We are required to pay interest on borrowings under our credit facility and term loan at floating rates based on LIBOR. Future debt that we may incur may also require that we pay interest based upon LIBOR. We currently expect that the determination of interest under our credit agreement would be revised as provided under the agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR for similar types of loans. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any, will replace LIBOR if it is phased out or transitioned.

Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
WARNING CONCERNING FORWARD LOOKING STATEMENTSWarning Concerning Forward-Looking Statements
THIS QUARTERLY REPORT ON FORMThis Quarterly Report on Form 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OFcontains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”and other securities laws. Also, whenever we use words such as “believe”, “EXPECT”“expect”, “ANTICIPATE”“anticipate”, “INTEND”“intend”, “PLAN”“plan”, “ESTIMATE”“estimate”, “WILL”“will”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:“may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:
OUR HOTEL MANAGERS’ OR TENANTS’ ABILITIES TO PAY THE CONTRACTUAL AMOUNTS OF RETURNS OR RENTS DUE TO US,The performance of our operators’ abilities to pay the contractual amounts of returns or rents due to us,
OUR ABILITY TO COMPETE FOR ACQUISITIONS EFFECTIVELY,Our sales and acquisition of properties,
OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,Our ability to compete for acquisitions effectively,
OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO SUSTAIN THE AMOUNT OF SUCH DISTRIBUTIONS,Our policies and plans regarding investments, financings and dispositions,
OUR ABILITY TO RAISE DEBT OR EQUITY CAPITAL,Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,
OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF DEBT AND EQUITY CAPITAL,Our ability to raise debt or equity capital,
OUR INTENT TO MAKE IMPROVEMENTS TO CERTAIN OF OUR PROPERTIES AND THE SUCCESS OF OUR HOTEL RENOVATIONS,Our ability to appropriately balance our use of debt and equity capital,
OUR ABILITY TO ENGAGE AND RETAIN QUALIFIED MANAGERS AND TENANTS FOR OUR HOTELS AND TRAVEL CENTERS ON SATISFACTORY TERMS,Our intent to make improvements to certain of our properties and the success of our hotel renovations,
THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,Our ability to engage and retain qualified managers and tenants for our hotels and net lease properties on satisfactory terms,
OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,The future availability of borrowings under our revolving credit facility,
OUR CREDIT RATINGS,Our ability to pay interest on and principal of our debt,
THE ABILITY OFOur credit ratings,
The ability of TA TO PAY CURRENT AND DEFERRED RENT AMOUNTS AND OTHER OBLIGATIONS DUE TO US,to pay current and deferred rent amounts and other obligations due to us,
OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP INTEREST IN AND OTHER RELATIONSHIPS WITHOur expectation that we benefit from our relationships with RMR INC.Inc.,
OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP INTEREST IN AND OTHER RELATIONSHIPS WITH AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,
OUR QUALIFICATION FOR TAXATION AS AOur qualification for taxation as a REIT,
CHANGES IN FEDERAL OR STATE TAX LAWS, ANDChanges in federal or state tax laws, and
Other matters.
Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO, Normalized FFO, cash flows, liquidity and prospects include, but are not limited to:
The impact of conditions in the economy and the capital markets on us and our managers and tenants,

OTHER MATTERS.Competition within the real estate, hotel, transportation and travel center and other industries in which our tenants operate, particularly in those markets in which our properties are located,
OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO AVAILABLE FOR COMMON SHAREHOLDERS, NORMALIZED FFO AVAILABLE FOR COMMON SHAREHOLDERS, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
THE IMPACT OF CONDITIONS AND CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR MANAGERS AND TENANTS,Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,
COMPETITION WITHIN THE REAL ESTATE, HOTEL, TRANSPORTATION AND TRAVEL CENTER INDUSTRIES, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,Acts of terrorism, outbreaks of so-called pandemics or other manmade or natural disasters beyond our control, and
COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS AFFECTING THE REAL ESTATE, HOTEL, TRANSPORTATION AND TRAVEL CENTER INDUSTRIES, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,
LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,
ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL, AND
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES,Actual and potential conflicts of interest with our related parties, including our managing trustees, TA, SONESTA,Sonesta, RMR INC.Inc., RMR LLC AIC AND OTHERS AFFILIATED WITH THEM.and others affiliated with them.
FOR EXAMPLE:For example:
OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO MAINTAIN OUR PROPERTIES AND OUR WORKING CAPITAL REQUIREMENTS. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our future earnings, the capital costs we incur to acquire and maintain our properties and our working capital requirements. We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,
THE SECURITY DEPOSITS WHICH WE HOLD ARE NOT IN SEGREGATED CASH ACCOUNTS OR OTHERWISE SEPARATE FROM OUR OTHER ASSETS AND LIABILITIES. ACCORDINGLY, WHEN WE RECORD INCOME BY REDUCING OUR SECURITY DEPOSIT LIABILITIES, WE DO NOT RECEIVE ANY ADDITIONAL CASH PAYMENT. BECAUSE WE DO NOT RECEIVE ANY ADDITIONAL CASH PAYMENT AS WE APPLY SECURITY DEPOSITS TO COVER PAYMENT SHORTFALLS, THE FAILURE OF OUR MANAGERS OR TENANTS TO PAY MINIMUM RETURNS OR RENTS DUE TO US MAY REDUCE OUR CASH FLOWS AND OUR ABILITY TO PAY DISTRIBUTIONS TO SHAREHOLDERS,The security deposits which we hold are not in segregated cash accounts or otherwise separate from our other assets and liabilities. Accordingly, when we record income by reducing our security deposit liabilities, we do not receive any additional cash payment. Because we do not receive any additional cash payment as we apply security deposits to cover payment shortfalls, the failure of our managers or tenants to pay minimum returns or rents due to us may reduce our cash flows and our ability to pay distributions to shareholders,
AS OF SEPTEMBERCertain of our aggregate annual minimum returns and rents were secured by guarantees or security deposits from our managers and tenants. This may imply that these minimum returns and rents will be paid. In fact, certain of these guarantees and security deposits are limited in amount and duration and all the guarantees are subject to the guarantors’ abilities and willingness to pay. We cannot be sure of the future financial performance of our properties and whether such performance will cover our minimum returns and rents, whether the guarantees or security deposits will be adequate to cover future shortfalls in the minimum returns or rents due to us which they guarantee or secure, or regarding our managers’, tenants’ or guarantors’ future actions if and when the guarantees and security deposits expire or are depleted or their abilities or willingness to pay minimum returns and rents owed to us. Moreover, the security deposits we hold are not segregated from our other assets and, although the application of security deposits to cover payment shortfalls will result in us recording income, it will not result in us receiving additional cash. The balance of our annual minimum returns and rents as of September 30, 2018, APPROXIMATELY 74% OF OUR AGGREGATE ANNUAL MINIMUM RETURNS AND RENTS WERE SECURED BY GUARANTEES OR SECURITY DEPOSITS FROM OUR MANAGERS AND TENANTS. THIS MAY IMPLY THAT THESE MINIMUM RETURNS AND RENTS WILL BE PAID. IN FACT, CERTAIN OF THESE GUARANTEES AND SECURITY DEPOSITS ARE LIMITED IN AMOUNT AND DURATION AND ALL THE GUARANTEES ARE SUBJECT TO THE GUARANTORS’ ABILITIES AND WILLINGNESS TO PAY. WE CANNOT BE SURE OF THE FUTURE FINANCIAL PERFORMANCE OF OUR PROPERTIES AND WHETHER SUCH PERFORMANCE WILL COVER OUR MINIMUM RETURNS AND RENTS, WHETHER THE GUARANTEES OR SECURITY DEPOSITS WILL BE ADEQUATE TO COVER FUTURE SHORTFALLS IN THE MINIMUM RETURNS OR RENTS DUE TO US WHICH THEY GUARANTY OR SECURE, OR REGARDING OUR MANAGERS’, TENANTS’ OR GUARANTORS’ FUTURE ACTIONS IF AND WHEN THE GUARANTEES AND SECURITY DEPOSITS EXPIRE OR ARE DEPLETED OR THEIR ABILITIES OR WILLINGNESS TO PAY MINIMUM RETURNS AND RENTS OWED TO US. MOREOVER, THE SECURITY DEPOSITS WE HOLD ARE NOT SEGREGATED FROM OUR OTHER ASSETS AND THE APPLICATION OF SECURITY DEPOSITS TO COVER PAYMENT2019 was not secured by guarantees or security deposits,
We have no guarantees or security deposits for the minimum returns due to us from our Marriott No. 1, Sonesta or Wyndham agreements. Accordingly, we may receive amounts that are less than the contractual minimum returns stated in these agreements,
We have recently renovated certain hotels and are currently renovating additional hotels. We currently expect to fund approximately $127.5 million during the last three months of 2019 and $28.0 million in 2020 for renovations and other capital improvement costs at certain of our hotels. The cost of capital projects associated with such renovations may be greater than we currently anticipate. Operating results at our hotels may decline as a result of having rooms out of service or other disruptions during renovations. Also, while our funding of these capital projects will cause our contractual minimum returns to increase, the hotels’ operating results may not increase or may not increase to the extent that the minimum returns increase. Accordingly, coverage of our minimum returns at these hotels may remain depressed for an extended period,
Hotel room demand and trucking activity are often reflections of the general economic activity in the country and in the geographic areas where certain of our properties are located. If economic activity declines, the operating results of certain of our properties may decline, the financial results of our managers and our tenants may suffer and these managers and tenants may be unable to pay our returns or rents. Also, depressed operating results from our properties for extended periods may result in the operators of some or all of our properties becoming unable or unwilling to meet their obligations or their guarantees and security deposits we hold may be exhausted,

SHORTFALLS WILL RESULT IN US RECORDING INCOME, BUT WILL NOT RESULT IN US RECEIVING ADDITIONAL CASH. THE BALANCE OF OUR ANNUAL MINIMUM RETURNS AND RENTS AS OF SEPTEMBERHotel and other competitive forms of temporary lodging supply (for example, Airbnb) have been increasing and may affect our hotel operators’ ability to grow ADR and occupancy, and ADR and occupancy could decline due to increased competition which may cause our hotel operators to become unable to pay our returns or rents,
If the current level of commercial activity in the country declines, if the price of diesel fuel increases significantly, if fuel conservation measures are increased, if freight business is directed away from trucking, if TA is unable to effectively compete or operate its business, if fuel efficiencies, the use of alternative fuels or transportation technologies reduce the demand for products and services TA sells or for various other reasons, TA may become unable to pay current and deferred rents due to us,
Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties that generate returns or can be leased for rents which exceed our operating and capital costs. We may be unable to identify properties that we want to acquire and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, any properties we may acquire may not generate returns or rents which exceed our operating and capital costs,
We may not realize the benefits we expect from the SMTA Transaction, including a more secure financial profile, increased scale and greater diversity in tenant base, property type and geography, and we may realize losses as a result of the transaction,
We believe that our portfolio agreements include diverse groups of properties. Our portfolio agreements may not increase the security of our cash flows or increase the likelihood our agreements will be renewed as we expect,
We expect that most of our acquisition efforts will focus on hotel and net lease service-oriented based properties; however, the focus of our acquisition efforts may include other types of properties,
To reduce our leverage, we have sold assets and have targeted additional assets to sell aggregating approximately $800.0 million. We may not complete the sales of any additional assets we plan to sell, and we may determine to sell fewer, additional or other assets than those we may target for sale. Also, we may sell assets at prices that are less than we expect and less than their carrying values and we may incur losses on these sales or with respect to these assets, or may not ultimately use any proceeds we may receive to reduce debt leverage,
Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales and any related management or lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,
At September 30, 2018 WAS NOT SECURED BY GUARANTEES OR SECURITY DEPOSITS,2019, we had $17.0 million of cash and cash equivalents, $210.0 million available under our $1.0 billion revolving credit facility and security deposits and guarantees covering some of our minimum returns and rents. These statements may imply that we have sufficient working capital and liquidity. However, our managers and tenants may not be able to fund minimum returns and rents due to us from operating our properties or from other resources; in the past and currently, certain of our tenants and managers have in fact not paid the minimum amounts due to us from their operations of our leased or managed properties. Also, certain of the security deposits and guarantees we have to cover any such shortfalls are limited in amount and duration, and any security deposits we apply for such shortfalls do not result in additional cash flows to us. Our properties require, and we have agreed to provide, significant funding for capital improvements, renovations and other matters. Accordingly, we may not have sufficient working capital or liquidity,
THE $35.7 MILLION LIMITED GUARANTY FROM WYNDHAM WAS DEPLETED DURING THE YEAR ENDED DECEMBER 31, 2017 AND REMAINED DEPLETED AS OF SEPTEMBER 30, 2018. WE DO NOT HOLD A SECURITY DEPOSIT WITH RESPECT TO AMOUNTS DUE UNDER THE WYNDHAM AGREEMENT. WYNDHAM HAS PAID 85% OF THE MINIMUM RETURNS DUE TO US FOR EACH OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018. WE CAN PROVIDE NO ASSURANCE AS TO WHETHER WYNDHAM WILL CONTINUE TO PAY AT LEAST THE GREATER OF AVAILABLE HOTEL CASH FLOWS AFTER PAYMENT OF HOTEL OPERATING EXPENSES AND 85% OF THE MINIMUM RETURNS DUE TO US OR IF WYNDHAM WILL DEFAULT ON ITS PAYMENTS,We may be unable to repay our debt obligations when they become due,
WE HAVE NO GUARANTEES OR SECURITY DEPOSITS FOR THE MINIMUM RETURNS DUE TO US FROM OUR MARRIOTT NO. 1 OR OUR SONESTA AGREEMENTS. ACCORDINGLY, WE MAY RECEIVE AMOUNTS THAT ARE LESS THAN THE CONTRACTUAL MINIMUM RETURNS STATED IN THESE AGREEMENTS,We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,
WE HAVE RECENTLY RENOVATED CERTAIN HOTELS AND ARE CURRENTLY RENOVATING ADDITIONAL HOTELS. WE CURRENTLY EXPECT TO FUND APPROXIMATELY $90.3 MILLION DURING THE LAST THREE MONTHS OF 2018 AND $167.5 MILLION IN 2019 FOR RENOVATIONS AND OTHER CAPITAL IMPROVEMENT COSTS AT CERTAIN OF OUR HOTELS. THE COST OF CAPITAL PROJECTS ASSOCIATED WITH SUCH RENOVATIONS MAY BE GREATER THAN WE CURRENTLY ANTICIPATE. OPERATING RESULTS AT OUR HOTELS MAY DECLINE AS A RESULT OF HAVING ROOMS OUT OF SERVICE OR OTHER DISRUPTIONS DURING RENOVATIONS. ALSO, WHILE OUR FUNDING OF THESE CAPITAL PROJECTS WILL CAUSE OUR CONTRACTUAL MINIMUM RETURNS TO INCREASE, THE HOTELS’ OPERATING RESULTS MAY NOT INCREASE OR MAY NOT INCREASE TO THE EXTENT THAT THE MINIMUM RETURNS INCREASE. ACCORDINGLY, COVERAGE OF OUR MINIMUM RETURNS AT THESE HOTELS MAY REMAIN DEPRESSED FOR AN EXTENDED PERIOD,Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions that we may be unable to satisfy,
WE CURRENTLY EXPECT TO PURCHASE FROM TA DURING THE LAST THREE MONTHS OF 2018 APPROXIMATELY $13.6 MILLION OF CAPITAL IMPROVEMENTS TA EXPECTS TO MAKE TO THE TRAVEL CENTERS WE LEASE TO TA. PURSUANT TO THE TERMS OF THE APPLICABLE LEASES, THE ANNUAL RENT PAYABLE TO US BY TA WILL INCREASE AS A RESULT OF ANY SUCH PURCHASES. WE MAY ULTIMATELY PURCHASE MORE OR LESS THAN THIS BUDGETED AMOUNT. TA MAY NOT REALIZE RESULTS FROM ANY OF THESE CAPITAL IMPROVEMENTS WHICH EQUAL OR EXCEED THE INCREASED ANNUAL RENTS IT WILL BE OBLIGATED TO PAY TO US, WHICH COULD INCREASE THE RISK OF TA BEING UNABLE TO PAY AMOUNTS DUE TO US,Actual costs under our revolving credit facility or other floating rate debt will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,
HOTEL ROOM DEMAND AND TRUCKING ACTIVITY ARE OFTEN REFLECTIONS OF THE GENERAL ECONOMIC ACTIVITY IN THE COUNTRY AND IN THE GEOGRAPHIC AREAS WHERE OUR PROPERTIES ARE LOCATED. IF ECONOMIC ACTIVITY DECLINES, HOTEL ROOM DEMAND AND TRUCKING ACTIVITY MAY DECLINE AND THE OPERATING RESULTS OF OUR HOTELS AND TRAVEL CENTERS MAY DECLINE, THE FINANCIAL RESULTS OF OUR HOTEL MANAGERS AND OUR TENANTS, INCLUDING TA, MAY SUFFER AND THESE MANAGERS AND TENANTS MAY BE UNABLE TO PAY OUR RETURNS OR RENTS. ALSO, DEPRESSED OPERATING RESULTS FROM OUR PROPERTIES FOR EXTENDED PERIODS MAY RESULT IN THE OPERATORS OF SOME OR ALL OF OUR HOTELS AND OUR TRAVEL CENTERS BECOMING UNABLE OR UNWILLING TO MEET THEIR OBLIGATIONS OR THEIR GUARANTEES AND SECURITY DEPOSITS WE HOLD MAY BE EXHAUSTED,
HOTEL AND OTHER COMPETITIVE FORMS OF TEMPORARY LODGING SUPPLY (FOR EXAMPLE, AIRBNB) HAVE BEEN INCREASING AND MAY AFFECT OUR HOTEL OPERATORS' ABILITY TO GROW ADR AND OCCUPANCY, AND ADR AND OCCUPANCY COULD DECLINE DUE TO INCREASED COMPETITION WHICH MAY CAUSE OUR HOTEL OPERATORS TO BECOME UNABLE TO PAY OUR RETURNS OR RENTS,
IF THE CURRENT LEVEL OF COMMERCIAL ACTIVITY IN THE COUNTRY DECLINES, IF THE PRICE OF DIESEL FUEL INCREASES SIGNIFICANTLY, IF FUEL CONSERVATION MEASURES ARE INCREASED, IF FREIGHT BUSINESS IS DIRECTED AWAY FROM TRUCKING, IF TA IS UNABLE TO EFFECTIVELY COMPETE OR OPERATE ITS BUSINESS, IF FUEL EFFICIENCIES, THE USE OF ALTERNATIVE FUELS OR TRANSPORTATION TECHNOLOGIES REDUCE THE DEMAND FOR PRODUCTS AND SERVICES TA SELLSThe maximum borrowing availability under our revolving credit facility and term loan may be increased to up to $2.3 billion on a combined basis in certain circumstances; however, increasing the maximum borrowing availability under

OR FOR VARIOUS OTHER REASONS, TA MAY BECOME UNABLE TO PAY CURRENT AND DEFERRED RENTS DUE TO US,our revolving credit facility and term loan is subject to our obtaining additional commitments from lenders, which may not occur,
OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES THAT GENERATE RETURNS OR CAN BE LEASED FOR RENTS WHICH EXCEED THEIR OPERATING AND CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING, MANAGEMENT CONTRACTS OR LEASE TERMS FOR NEW PROPERTIES,The premiums used to determine the interest rate payable on our revolving credit facility and term loan and the facility fee payable on our revolving credit facility are based on our credit ratings. Changes in our credit ratings may cause the interest and fees we pay to increase,
CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND ANY EXPECTED ACQUISITIONS AND SALES AND ANY RELATED MANAGEMENT OR LEASE ARRANGEMENTS WE EXPECT TO ENTER MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS OR ARRANGEMENTS MAY CHANGE,We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions; however, the applicable conditions may not be met,
AT SEPTEMBER 30, 2018, WE HAD $19.8 MILLION OF CASH AND CASH EQUIVALENTS, $857.0 MILLION AVAILABLE UNDER OUR $1.0 BILLION REVOLVING CREDIT FACILITY AND SECURITY DEPOSITS AND GUARANTEES COVERING SOME OF OUR MINIMUM RETURNS AND RENTS. THESE STATEMENTS MAY IMPLY THAT WE HAVE ABUNDANT WORKING CAPITAL AND LIQUIDITY. HOWEVER, OUR MANAGERS AND TENANTS MAY NOT BE ABLE TO FUND MINIMUM RETURNS AND RENTS DUE TO US FROM OPERATING OUR PROPERTIES OR FROM OTHER RESOURCES; IN THE PAST AND CURRENTLY, CERTAIN OF OUR TENANTS AND HOTEL MANAGERS HAVE IN FACT NOT PAID THE MINIMUM AMOUNTS DUE TO US FROM THEIR OPERATIONS OF OUR LEASED OR MANAGED PROPERTIES. ALSO, CERTAIN OF THE SECURITY DEPOSITS AND GUARANTEES WE HAVE TO COVER ANY SUCH SHORTFALLS ARE LIMITED IN AMOUNT AND DURATION, AND ANY SECURITY DEPOSITS WE APPLY FOR SUCH SHORTFALLS DO NOT RESULT IN ADDITIONAL CASH FLOWS TO US. OUR PROPERTIES REQUIRE, AND WE HAVE AGREED TO PROVIDE, SIGNIFICANT FUNDING FOR CAPITAL IMPROVEMENTS, RENOVATIONS AND OTHER MATTERS. ACCORDINGLY, WE MAY NOT HAVE SUFFICIENT WORKING CAPITAL OR LIQUIDITY,
WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,
WE INTEND TO CONDUCT OUR BUSINESS ACTIVITIES IN A MANNER THAT WILL AFFORD US REASONABLE ACCESS TO CAPITAL FOR INVESTMENT AND FINANCING ACTIVITIES. HOWEVER, WE MAY NOT SUCCEED IN THIS REGARD AND WE MAY NOT HAVE REASONABLE ACCESS TO CAPITAL,
CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,
ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE DEBT WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH DEBT,
THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN MAY BE INCREASED TO UP TO $2.3 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,
THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR REVOLVING CREDIT FACILITY AND TERM LOAN AND THE FACILITY FEE PAYABLE ON OUR REVOLVING CREDIT FACILITY ARE BASED ON OUR CREDIT RATINGS. FUTURE CHANGES IN OUR CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE,
WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS; HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,
THE BUSINESS AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US ANDThe business and property management agreements between us and RMR LLC HAVE CONTINUINGhave continuing 20 YEAR TERMS. HOWEVER, THOSE AGREEMENTS PERMIT EARLY TERMINATION INyear terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms,

CERTAIN CIRCUMSTANCES. ACCORDINGLY, WE CANNOT BE SURE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS,
WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDINGWe believe that our relationships with our related parties, including RMR LLC, RMR INC.Inc., TA, SONESTA, AIC AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. HOWEVER, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE,Sonesta and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize,
RMR INC. MAY REDUCE THE AMOUNT OF DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US, AND
MARRIOTT HAS NOTIFIED US THAT IT DOES NOT INTEND TO EXTEND ITS LEASE FOR OUR RESORT HOTEL ON KAUAI, HAWAII WHEN THAT LEASE EXPIRES ON DECEMBERMarriott has notified us that it does not intend to extend its lease for our resort hotel on Kauai, Hawaii when that lease expires on December 31, 2019. We are in negotiations with Marriott regarding this hotel and other hotels managed by Marriott. If we and Marriott are unable to reach agreement, we will evaluate alternatives for the Kauai hotel, which may include rebranding or selling the hotel. These statements may imply that Marriott will not operate the Kauai hotel in the future or that we may have other alternatives for this hotel that may be more beneficial to maintaining Marriott as the operator of that hotel if we are unable to reach agreement with Marriott. At this time, we cannot predict how our negotiations with Marriott will impact the future of the Kauai hotel or our disposition plans for certain hotels. For example, the Kauai hotel may continue to be operated by Marriott on different contract terms than the current lease, we may identify a different operator for this hotel or the cash flows which we receive from our ownership of this hotel may be different than the rent we now receive. Also, although the current lease expires on December 31, 2019, AND WE INTEND TO HAVE DISCUSSIONS WITH MARRIOTT ABOUT THE FUTURE OF THIS HOTEL. THESE STATEMENTS MAY IMPLY THAT MARRIOTT WILL NOT OPERATE THIS HOTEL IN THE FUTURE OR THAT WE MAY RECEIVE LESS CASH FLOWS FROM THIS HOTEL IN THE FUTURE. OUR DISCUSSIONS WITH MARRIOTT HAVE BEGUN. AT THIS TIME WE CANNOT PREDICT HOW OUR DISCUSSIONS WITH MARRIOTT WILL IMPACT THE FUTURE OF THIS HOTEL. FOR EXAMPLE, THIS HOTEL MAY CONTINUE TO BE OPERATED BY MARRIOTT ON DIFFERENT CONTRACT TERMS THAN THE CURRENT LEASE, WE MAY IDENTIFY A DIFFERENT OPERATOR FOR THIS HOTEL OR THE CASH FLOWS WHICH WE RECEIVE FROM OUR OWNERSHIP OF THIS HOTEL MAY BE DIFFERENT THAN THE RENT WE NOW RECEIVE. ALSO, ALTHOUGH THE CURRENT LEASE EXPIRES ON DECEMBER 31,we and Marriott may agree upon a different termination date. Our discussions with Marriott are ongoing and we cannot be certain we will reach any agreement with Marriott for the Kauai or any other Marriott managed hotel that we own and our disposition plans may change or we may sell more or less assets than we currently intend or none at all. There can be no assurance we can find buyers for our properties or sell them at attractive prices,
We are exiting our relationship with Wyndham and expect to rebrand or sell our 22 hotels currently managed by Wyndham. There can be no assurance that rebranding any of these hotels will result in improved performance. In fact, rebranding hotels will result in short term disruption to operations. In addition, we cannot be sure we will be able to sell any of these hotels and any sales we may complete may be at prices less than we expect and less than net book value. We may incur losses in connection with any rebranding or sales of these hotels or as a result of any plan to rebrand or sell these hotels,
We expect to receive a capital distribution in the fourth quarter of 2019 WE AND MARRIOTT MAY AGREE UPON A DIFFERENT TERMINATION DATE.in connection with the dissolution of AIC. We cannot be sure that such distribution will occur when expected or at all or what the amount of any such distribution will be, and
CURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS ACTS OF TERRORISM, NATURAL DISASTERS, CHANGES IN OUR MANAGERS’ OR TENANTS’ REVENUES OR EXPENSES, CHANGES IN OUR MANAGERS’ OR TENANTS’ FINANCIAL CONDITIONS, THE MARKET DEMAND FOR HOTEL ROOMS OR FUEL OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.We are currently exploring secured financing and the formation of a joint venture with a portfolio of travel centers. There can be no assurance we will be successful with any financing or this venture or move forward at all with such transactions.
THE INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORMCurrently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as acts of terrorism, natural disasters, changes in our managers’ or tenants’ revenues or expenses, changes in our managers’ or tenants’ financial conditions, the market demand for hotel rooms or the goods and services provided at our properties or changes in capital markets or the economy generally.
The information contained in this Quarterly Report on Form 10-Q AND IN OUR 2017 ANNUAL REPORT OR OUR OTHER FILINGS WITH THEand in our 2018 Annual Report or in our other filings with the SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”including under the caption “Risk Factors”, OR INCORPORATED HEREIN OR THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. OUR FILINGS WITH THEor incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.are available on the SEC’s website at www.sec.gov.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.You should not place undue reliance upon our forward-looking statements.
EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

Statement Concerning Limited Liability
STATEMENT CONCERNING LIMITED LIABILITY
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING HOSPITALITY PROPERTIES TRUST, DATED AUGUSTThe Amended and Restated Declaration of Trust establishing Service Properties Trust (formerly known as Hospitality Properties Trust), dated August 21, 1995, AS AMENDED AND SUPPLEMENTED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HOSPITALITY PROPERTIES TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HOSPITALITY PROPERTIES TRUST. ALL PERSONS DEALING WITH HOSPITALITY PROPERTIES TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF HOSPITALITY PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.as amended and supplemented, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Service Properties Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Service Properties Trust. All persons dealing with Service Properties Trust in any way shall look only to the assets of Service Properties Trust for the payment of any sum or the performance of any obligation.

Part IIOther Information
Item 1A. Risk Factors
ThereOur business faces many risks, a number of which are described under the caption “Risk Factors” in our 2018 Annual Report. The completion of the SMTA Transaction may subject us to additional risks that are described below. The risks described in our 2018 Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our 2018 Annual Report or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our 2018 Annual Report and below, and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.
Risks Related to us as a Result of the Completion of the SMTA Transaction
Our Normalized FFO per share may not increase as a result of the completion of the SMTA Transaction.
We believe the SMTA Transaction will increase our Normalized FFO per share in 2020 on an annualized basis after expected asset sales. Any unexpected event, including, but not limited to, performance of the SMTA portfolio below our expectations and our receipt of proceeds from asset sales below our target, may lead to our realizing Normalized FFO per share below our expectations or in a decrease in Normalized FFO per share. Furthermore, our existing business is subject to various risks, including risks beyond our control. As a result, even if the SMTA portfolio performs as we expect and we receive our targeted proceeds on asset sales, our Normalized FFO may not increase following the SMTA Transaction and it could decline.
The SMTA properties have significantly increased our property portfolio and we are now operating in industries that are new to us, and we may not successfully integrate or operate these properties and we expect to incur additional costs.
The SMTA Transaction involved the acquisition of 767 properties. We and RMR LLC are devoting significant management time and attention to integrating and operating these properties. Unexpected difficulties or delays may arise during this integration process, including, for example, difficulties or delays in transitioning the management or financial and tax reporting functions with respect to all, or some of, the acquired properties. Similarly, we will incur additional costs to lease these properties, which may exceed the amounts we expect. Historically, our property management agreement with RMR LLC has been limited to the office building component of one of our hotels. The SMTA properties were added to the property management agreement upon closing the SMTA Transaction, resulting in a significant increase in the scope of property management services RMR LLC is providing to us and our costs for property management services. Also, any unexpected transition and integration difficulties and any increased costs may reduce, delay or eliminate the benefits we expect to realize from the SMTA Transaction.
Following the closing of the SMTA Transaction, we have an expanded portfolio and operations in industries that are new to us and in which we have limited or no experience. Our future success will depend, in part, upon our ability to: adapt to operating and competing in new industries; attract and retain tenants in these new markets at rents that we expect; integrate new operations into our existing business in an efficient and timely manner; successfully manage our operations and costs; avoid this new operation negatively impacting the performance of our existing business; and maintain necessary internal controls. We cannot be sure that we will be able to increase future cash flows or property level rent coverage, maintain current rents and occupancy at the SMTA properties, that we will realize any expected benefits from the SMTA Transaction, particularly with respect to the properties in new industries in which we have limited or no experience, or that the SMTA Transaction will not negatively impact the performance of our existing business.
We may be subject to unknown or contingent liabilities related to the SMTA properties for which we may have no recourse against SMTA.
The SMTA properties may be subject to unknown or contingent liabilities, including environmental liabilities, for which we may have no recourse against SMTA. The amount of liabilities associated with the SMTA properties may exceed our expectations. We do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we may have acquired a property that contains undisclosed defects in design or construction or which was not properly operated.

Risks Relating to Our Indebtedness
In connection with the SMTA Transaction, we incurred significant additional indebtedness.
In connection with the SMTA Transaction, we incurred significant additional indebtedness. This increased indebtedness could adversely affect us for numerous reasons, including by:
increasing our vulnerability to general adverse economic and business conditions;
increasing the costs to us of incurring additional debt;
increasing our exposure to floating interest rates;
limiting our ability to compete with other companies that are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions, developing properties or exploiting business opportunities;
restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness;
exposing us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results;
limiting our ability to react to changing market conditions in our industry;
limiting our ability to obtain additional financing to fund future acquisitions, working capital, capital expenditures and other general business requirements;
requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures, distributions to our shareholders and general operating requirements; and
limiting our flexibility in planning for, or reacting to, changes in our business.
We intend to sell approximately $800 million of assets to reduce our debt levels. We may not achieve our asset disposition plan, which may limit our ability to reduce leverage and adversely affect our credit profile.
We have identified approximately $800 million of assets to be sold to reduce our debt levels. Although we have made some sales in furtherance of this plan, we cannot be sure that we will be able to find attractive sale opportunities for additional assets or that any sale will be completed in a timely manner, if at all. Our ability to sell these or any of our other properties, and the prices we receive upon a sale, may be affected by many factors, and we may be unable to execute our strategy. In particular, these factors could arise from weakness in or the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers and the tenants of the properties, the terms of the leases with tenants at the properties, the characteristics, quality and prospects of the properties, and the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, industry trends, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. We may not succeed in selling properties that we have identified, or in the future identify, for sale, the terms of any such sales may not meet our expectations and we may incur losses in connection with these potential sales. In addition, we may elect to change the amount or mix of assets we may seek to sell or to otherwise change or abandon the plan. If we are unable to realize proceeds from the sale of properties sufficient to allow us to reduce our leverage to a level we believe appropriate or which ratings agencies and possible financing sources believe appropriate, our credit ratings may be lowered, we may reduce our acquisition activity, we may reduce the amount we invest in our properties or pay for expenses and we may reduce the amount of distributions we pay to our shareholders.
Our credit ratings have been adversely affected by the SMTA Transaction.
As a result of the SMTA Transaction, S&P Global assigned a negative outlook to our credit ratings and Moody’s downgraded our credit ratings. These negative actions imply that our debt ratings may be downgraded to below "investment

grade." If our credit ratings are further downgraded, we may have difficulty accessing debt capital markets to meet our obligations or pursue business opportunities and the costs of any debt we do obtain may be increased. For example, the interest rates we are required to pay on our revolving credit facility, term loan and our other floating rate debt obligations will increase if our debt ratings are further downgraded. We intend to sell some assets to reduce leverage and to take other actions which we believe may avoid our credit ratings being downgraded below investment grade; however, we can provide no material changesassurance that these efforts will be successful in avoiding our credit ratings being downgraded below investment grade.
We may not be able to risk factors from those we previously disclosedcontinue paying distributions at or above our current annualized distribution rate.
Our current annualized distribution rate is $2.16 per common share. We may not be able to sustain our current distribution rate, or pay distributions at all, for various reasons, including that:
Our ability to pay distributions may be adversely affected if any of the risks described herein or in our 20172018 Annual Report.Report, or other significant events, occur;
Our declaration and payment of distributions is subject to compliance with restrictions contained in our revolving credit facility and term loan agreement and may be subject to restrictions governing future debt that we may incur;
We may desire to retain cash to obtain, maintain or improve our credit ratings, to reduce leverage or pursue other business opportunities; and
We have no obligation to pay distributions, and each distribution is made at the discretion of our Board of Trustees and the payment of a distribution depends on various factors that our Board of Trustees at the time deems relevant, including among other things, 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 dividend yield and 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.
For these reasons, among others, we may not be able to meet or sustain our current annualized distribution rate and we may cease making distributions.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended September 30, 2018:2019:
 Maximum
 Total Number of Approximate Dollar
 Shares Purchased Value of Shares that
 Number of as Part of Publicly May Yet Be Purchased
 Shares Average Price Announced Plans Under the Plans or
Calendar Month 
Purchased (1)
 Paid per Share or Programs Programs 
Number of Shares Purchased (1)
  Average Price Paid per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
September 2018 17,808 $28.35 $ $
July 2019 5,041 $25.20 $ $
September 2019 24,293 25.64 $ $
Total 17,808 $28.35 $ $ 29,334 $25.56 $ $
 
(1)These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of certain of our current and former officers and certain other current and former RMR LLC employees in connection with awards of our common shares and the vesting of awards of ourthose and prior awards of common shares.shares to them. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.


Item 6. Exhibits
Exhibit
Number
 Description
3.1

 
3.2

 
4.1

 
4.2

 
4.3

 
4.4

 
4.5

 
4.6

 
4.7

 

4.8

 
4.9

 
4.10

 

Exhibit
Number
Description
4.11

 
4.12

 
4.13

 
4.14

 
4.15
4.16
4.17
10.1

 
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.210.13

 
31.1

 
31.2

 

Exhibit
Number
Description
32.1

 
101.1101.INS

 The following materials fromXBRL Instance Document - the Company’s Quarterly Report on Form 10-Q forinstance document does not appear in the quarter ended September 30, 2018 formatted inInteractive Data File because its XBRL (eXtensible Business Reporting Language): (i)tags are embedded within the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and in detail.Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  
 HOSPITALITYSERVICE PROPERTIES TRUST
  
  
 /s/ John G. Murray
 John G. Murray
 President and Chief Executive Officer
 Dated: November 6, 20188, 2019
  
  
 /s/ Mark L. KleifgesBrian E. Donley
 Mark L. KleifgesBrian E. Donley
 Chief Financial Officer and Treasurer
 (Principal Financial and Accounting Officer)
 Dated: November 6, 20188, 2019




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