Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 20202021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11527
SERVICE PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland04-3262075
(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)
617-964-8389
(Registrant’s Telephone Number, Including Area Code)
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 filerAccelerated filer
Non-accelerated filerSmaller 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, 2020: 164,823,8333, 2021: 165,092,333


Table of Contents
SERVICE PROPERTIES TRUST
FORM 10-Q
September 30, 20202021

INDEX
 Page
  
  
  
  
  
  
  
  
  
   
  
  
References in this Quarterly Report on Form 10-Q to the Company, SVC, we, us or our include Service Properties Trust and our consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.
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Part I Financial Information
Item 1. Financial Statements
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except share data)
September 30,
2020
December 31,
2019
September 30,
2021
December 31,
2020
ASSETSASSETS  ASSETS  
Real estate properties:Real estate properties:  Real estate properties:  
LandLand$2,017,431 $2,066,602 Land$2,036,297 $2,030,440 
Buildings, improvements and equipmentBuildings, improvements and equipment9,058,542 9,318,434 Buildings, improvements and equipment9,109,518 9,131,832 
Total real estate properties, grossTotal real estate properties, gross11,075,973 11,385,036 Total real estate properties, gross11,145,815 11,162,272 
Accumulated depreciationAccumulated depreciation(3,212,594)(3,120,761)Accumulated depreciation(3,517,771)(3,280,110)
Total real estate properties, netTotal real estate properties, net7,863,379 8,264,275 Total real estate properties, net7,628,044 7,882,162 
Acquired real estate leases and other intangibles, netAcquired real estate leases and other intangibles, net338,430 378,218 Acquired real estate leases and other intangibles, net288,852 325,845 
Assets held for saleAssets held for sale191,202 87,493 Assets held for sale3,707 13,543 
Cash and cash equivalentsCash and cash equivalents47,847 27,633 Cash and cash equivalents912,532 73,332 
Restricted cashRestricted cash38,130 53,626 Restricted cash1,657 18,124 
Due from related personsDue from related persons58,648 68,653 Due from related persons46,660 55,530 
Other assets, netOther assets, net259,037 154,069 Other assets, net453,379 318,783 
Total assetsTotal assets$8,796,673 $9,033,967 Total assets$9,334,831 $8,687,319 
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY  LIABILITIES AND SHAREHOLDERS’ EQUITY  
Revolving credit facilityRevolving credit facility$80,086 $377,000 Revolving credit facility$1,000,000 $78,424 
Term loan, net397,523 397,889 
Senior unsecured notes, netSenior unsecured notes, net5,734,565 5,287,658 Senior unsecured notes, net6,139,787 6,130,166 
Security deposits284 109,403 
Accounts payable and other liabilitiesAccounts payable and other liabilities334,475 335,696 Accounts payable and other liabilities430,694 345,373 
Due to related personsDue to related persons7,656 20,443 Due to related persons10,608 30,566 
Total liabilitiesTotal liabilities6,554,589 6,528,089 Total liabilities7,581,089 6,584,529 
Commitments and contingenciesCommitments and contingenciesCommitments and contingencies00
Shareholders’ equity:Shareholders’ equity:  Shareholders’ equity:  
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,823,833 and 164,563,034 shares issued and outstanding, respectively1,648 1,646 
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,092,638 and 164,823,833, shares issued and outstanding, respectivelyCommon shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,092,638 and 164,823,833, shares issued and outstanding, respectively1,651 1,648 
Additional paid in capitalAdditional paid in capital4,549,466 4,547,529 Additional paid in capital4,552,087 4,550,385 
Cumulative other comprehensive lossCumulative other comprehensive loss63 Cumulative other comprehensive loss(755)(760)
Cumulative net income available for common shareholdersCumulative net income available for common shareholders3,318,004 3,491,645 Cumulative net income available for common shareholders2,834,449 3,180,263 
Cumulative common distributionsCumulative common distributions(5,627,097)(5,534,942)Cumulative common distributions(5,633,690)(5,628,746)
Total shareholders’ equityTotal shareholders’ equity2,242,084 2,505,878 Total shareholders’ equity1,753,742 2,102,790 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$8,796,673 $9,033,967 Total liabilities and shareholders’ equity$9,334,831 $8,687,319 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(dollarsamounts in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019 2021202020212020
Revenues:Revenues:    Revenues:    
Hotel operating revenuesHotel operating revenues$199,719 $525,290 $700,578 $1,521,368 Hotel operating revenues$338,375 $199,719 $787,463 $700,578 
Rental incomeRental income96,776 73,619 294,432 210,509 Rental income98,724 96,776 286,742 294,633 
FF&E reserve income863 201 3,365 
Total revenuesTotal revenues296,495 599,772 995,211 1,735,242 Total revenues437,099 296,495 1,074,205 995,211 
Expenses:Expenses: Expenses: 
Hotel operating expensesHotel operating expenses174,801 377,895 492,906 1,076,011 Hotel operating expenses285,233 174,801 723,769 492,906 
Other operating expensesOther operating expenses3,705 1,707 11,029 4,419 Other operating expenses4,437 3,705 11,758 11,029 
Depreciation and amortizationDepreciation and amortization122,204 103,160 377,557 301,721 Depreciation and amortization124,163 122,204 370,208 377,557 
General and administrativeGeneral and administrative12,295 12,464 37,621 36,906 General and administrative14,231 12,295 40,840 37,621 
Transaction related costsTransaction related costs3,149 — 28,934 — 
Loss on asset impairmentLoss on asset impairment10,248 55,502 Loss on asset impairment— 10,248 2,110 55,502 
Total expensesTotal expenses323,253 495,226 974,615 1,419,057 Total expenses431,213 323,253 1,177,619 974,615 
Other operating income:Other operating income:
Gain (loss) on sale of real estate, netGain (loss) on sale of real estate, net94 109 10,934 (9,655)
Unrealized gain on equity securities, netUnrealized gain on equity securities, net24,348 5,606 20,367 4,409 
Gain on insurance settlementGain on insurance settlement— — — 62,386 
Gain (loss) on sale of real estate109 (9,655)159,535 
Gain on insurance settlement62,386 
Dividend income1,752 
Unrealized gains (losses) on equity securities, net5,606 (3,950)4,409 (43,761)
Interest incomeInterest income688 283 1,774 Interest income203 485 283 
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $3,877, $2,689, $10,651 and $7,829, respectively)(80,532)(52,375)(223,679)(151,742)
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $5,877, $3,877, $15,123 and $10,651, respectively)Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $5,877, $3,877, $15,123 and $10,651, respectively)(92,458)(80,532)(273,227)(223,679)
Loss on early extinguishment of debtLoss on early extinguishment of debt(8,451)(6,970)(8,451)Loss on early extinguishment of debt— — — (6,970)
Income (loss) before income taxes and equity in earnings (losses) of an investee(101,569)40,458 (152,630)275,292 
Income tax (expense) benefit296 (467)(16,706)(1,266)
Loss before income taxes and equity in earnings (losses) of an investeeLoss before income taxes and equity in earnings (losses) of an investee(61,927)(101,569)(344,855)(152,630)
Income tax benefit (expense)Income tax benefit (expense)55 296 (1,009)(16,706)
Equity in earnings (losses) of an investeeEquity in earnings (losses) of an investee(1,369)83 (4,305)617 Equity in earnings (losses) of an investee2,158 (1,369)50 (4,305)
Net income (loss)(102,642)40,074 (173,641)274,643 
Other comprehensive income (loss):
Equity interest in investee’s unrealized gains (losses)63 (46)63 91 
Other comprehensive income (loss)63 (46)63 91 
Comprehensive income (loss)$(102,579)$40,028 $(173,578)$274,734 
Net lossNet loss(59,714)(102,642)(345,814)(173,641)
Other comprehensive income:Other comprehensive income:
Equity interest in investee’s unrealized gainsEquity interest in investee’s unrealized gains63 63 
Other comprehensive incomeOther comprehensive income63 63 
Comprehensive lossComprehensive loss$(59,709)$(102,579)$(345,809)$(173,578)
Weighted average common shares outstanding (basic)164,435 164,321 164,397 164,294 
Weighted average common shares outstanding (diluted)164,435 164,348 164,397 164,332 
Weighted average common shares outstanding (basic and diluted)Weighted average common shares outstanding (basic and diluted)164,590 164,435 164,532 164,397 
Net income (loss) per common share (basic and diluted)$(0.62)$0.24 $(1.06)$1.67 
Net loss per common share (basic and diluted)Net loss per common share (basic and diluted)$(0.36)$(0.62)$(2.10)$(1.06)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited) (in thousands, except share data)
Common SharesAdditional
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, 2019164,563,034 $1,646 $(5,534,942)$4,547,529 $3,491,645 $$2,505,878 
Net loss— — — — (33,650)— (33,650)
Common share grants6,000 — — 590 — — 590 
Common share repurchases(2,637)— — (43)— — (43)
Distributions— — (90,509)— — — (90,509)
Balance at March 31, 2020164,566,397 $1,646 $(5,625,451)$4,548,076 $3,457,995 $$2,382,266 
Net loss— — — — (37,349)— (37,349)
Common share grants35,000 — — 831 — — 831 
Common share repurchases and forfeitures(3,808)— — (27)— — (27)
Balance at June 30, 2020164,597,589 $1,646 $(5,625,451)$4,548,880 $3,420,646 $$2,345,721 
Net income— — — — (102,642)— (102,642)
Equity in unrealized gains of investees— — — — — 63 63 
Common share grants264,400 — 868 — — 871 
Common share repurchases and forfeitures(38,156)(1)— (282)— — (283)
Distributions— — (1,646)— — — (1,646)
Balance at September 30, 2020164,823,833 $1,648 $(5,627,097)$4,549,466 $3,318,004 $63 $2,242,084 
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Common SharesAdditional
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 — 868 — — 869 
Common share repurchases(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 gains— — — — — (46)(46)
Common share grants140,100 — 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 SharesAdditional
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, 2020164,823,833 $1,648 $(5,628,746)$4,550,385 $3,180,263 $(760)$2,102,790 
Net loss— — — — (194,990)— (194,990)
Common share grants— — — 380 — — 380 
Distributions to common shareholders— — (1,648)— — — (1,648)
Balance at March 31, 2021164,823,833 $1,648 $(5,630,394)$4,550,765 $2,985,273 $(760)$1,906,532 
Net loss— — — — (91,110)— (91,110)
Common share grants49,000 — 1,066 — — 1,067 
Common share repurchases and forfeitures(15,079)— — (190)— — (190)
Distributions— — (1,648)— — — (1,648)
Balance at June 30, 2021164,857,754 $1,649 $(5,632,042)$4,551,641 $2,894,163 $(760)$1,814,651 
Net loss— — — — (59,714)— (59,714)
Equity in unrealized gains of investees— — — — — 
Common share grants291,700 — 1,046 — — 1,048 
Common share repurchases and forfeitures(56,816)— — (600)— — (600)
Distributions— — (1,648)— — — (1,648)
Balance at September 30, 2021165,092,638 $1,651 $(5,633,690)$4,552,087 $2,834,449 $(755)$1,753,742 
Balance at December 31, 2019164,563,034 $1,646 $(5,534,942)$4,547,529 $3,491,645 $— $2,505,878 
Net loss— — — — (33,650)— (33,650)
Common share grants6,000 — — 590 — — 590 
Common share repurchases and forfeitures(2,637)— — (43)— — (43)
Distributions to common shareholders— — (90,509)— — — (90,509)
Balance at March 31, 2020164,566,397 $1,646 $(5,625,451)$4,548,076 $3,457,995 $— $2,382,266 
Net loss— — — — (37,349)— (37,349)
Common share grants35,000 — — 831 — — 831 
Common share repurchases and forfeitures(3,808)— — (27)— — (27)
Balance at June 30, 2020164,597,589 $1,646 $(5,625,451)$4,548,880 $3,420,646 $— $2,345,721 
Net loss— — — — (102,642)— (102,642)
Equity in unrealized gains of investees— — — — — 63 63 
Common share grants264,400 — 868 — — 871 
Common share repurchases and forfeitures(38,156)(1)— (282)— — (283)
Distributions— — (1,646)— — — (1,646)
Balance at September 30, 2020164,823,833 $1,648 $(5,627,097)$4,549,466 $3,318,004 $63 $2,242,084 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
For the Nine Months Ended September 30,For the Nine Months Ended September 30,
2020201920212020
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net income (loss)$(173,641)$274,643 
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Net lossNet loss$(345,814)$(173,641)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Depreciation and amortizationDepreciation and amortization377,557 301,721 Depreciation and amortization370,208 377,557 
Amortization of debt issuance costs and debt discounts and premiums as interest10,651 7,829 
Net amortization of debt issuance costs, discounts and premiums as interestNet amortization of debt issuance costs, discounts and premiums as interest15,123 10,651 
Straight-line rental incomeStraight-line rental income298 7,368 Straight-line rental income3,087 298 
Security deposits utilizedSecurity deposits utilized(109,162)(10,052)Security deposits utilized— (109,162)
Loss on early extinguishment of debtLoss on early extinguishment of debt6,970 8,451 Loss on early extinguishment of debt— 6,970 
Loss on asset impairmentLoss on asset impairment55,502 Loss on asset impairment2,110 55,502 
Unrealized (gains) and losses on equity securities, net(4,409)43,761 
Unrealized gain on equity securities, netUnrealized gain on equity securities, net(20,367)(4,409)
Equity in (earnings) losses of an investeeEquity in (earnings) losses of an investee4,305 (617)Equity in (earnings) losses of an investee(50)4,305 
(Gain) loss on sale of real estate(Gain) loss on sale of real estate9,655 (159,535)(Gain) loss on sale of real estate(10,934)9,655 
Gain on insurance settlementGain on insurance settlement(62,386)Gain on insurance settlement— (62,386)
Deferred income taxesDeferred income taxes15,650 Deferred income taxes— 15,650 
Other non-cash (income) expense, net(2,324)109 
Other non-cash income, netOther non-cash income, net(1,720)(2,324)
Changes in assets and liabilities:Changes in assets and liabilities:Changes in assets and liabilities:
Due from related personsDue from related persons171 3,609 Due from related persons(919)171 
Other assetsOther assets(45,844)(6,352)Other assets16,396 (45,844)
Accounts payable and other liabilitiesAccounts payable and other liabilities(15,585)12,743 Accounts payable and other liabilities(9,635)(15,585)
Due to related personsDue to related persons(1,884)(51,148)Due to related persons(16,483)(1,884)
Net cash provided by operating activitiesNet cash provided by operating activities65,524 432,530 Net cash provided by operating activities1,002 65,524 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Real estate acquisitions and depositsReal estate acquisitions and deposits(7,090)(2,659,186)Real estate acquisitions and deposits(7,649)(7,090)
Real estate improvementsReal estate improvements(54,603)(71,024)Real estate improvements(64,340)(54,603)
Hotel managers’ purchases with restricted cashHotel managers’ purchases with restricted cash(127,837)(143,692)Hotel managers’ purchases with restricted cash(23,692)(127,837)
Hotel manager’s deposit of insurance proceeds into restricted cashHotel manager’s deposit of insurance proceeds into restricted cash34,238 14,325 Hotel manager’s deposit of insurance proceeds into restricted cash— 34,238 
Net proceeds from sale of real estateNet proceeds from sale of real estate67,811 308,200 Net proceeds from sale of real estate33,772 67,811 
Investment in SonestaInvestment in Sonesta(5,314)Investment in Sonesta(25,443)(5,314)
Investment in TravelCenters of AmericaInvestment in TravelCenters of America(7,011)Investment in TravelCenters of America— (7,011)
Distributions in excess of earnings from Affiliates Insurance CompanyDistributions in excess of earnings from Affiliates Insurance Company286 Distributions in excess of earnings from Affiliates Insurance Company— 286 
Net proceeds from sale of equity securities93,892 
Net cash used in investing activitiesNet cash used in investing activities(99,520)(2,457,485)Net cash used in investing activities(87,352)(99,520)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from issuance of senior unsecured notes, after discounts and premiumsProceeds from issuance of senior unsecured notes, after discounts and premiums800,000 1,693,879 Proceeds from issuance of senior unsecured notes, after discounts and premiums— 800,000 
Repurchase of senior unsecured notesRepurchase of senior unsecured notes(355,971)Repurchase of senior unsecured notes— (355,971)
Borrowings under unsecured revolving credit facility709,000 997,000 
Repayments of unsecured revolving credit facility(1,005,914)(384,000)
Borrowings under revolving credit facilityBorrowings under revolving credit facility984,027 709,000 
Repayments of revolving credit facilityRepayments of revolving credit facility(62,451)(1,005,914)
Deferred financing costsDeferred financing costs(15,900)(21,869)Deferred financing costs(6,762)(15,900)
Repurchase of common sharesRepurchase of common shares(346)(794)Repurchase of common shares(787)(346)
Distributions to common shareholdersDistributions to common shareholders(92,155)(264,755)Distributions to common shareholders(4,944)(92,155)
Net cash provided by financing activitiesNet cash provided by financing activities38,714 2,019,461 Net cash provided by financing activities909,083 38,714 
Increase (decrease) in cash and cash equivalents and restricted cash4,718 (5,494)
Increase in cash and cash equivalents and restricted cashIncrease in cash and cash equivalents and restricted cash822,733 4,718 
Cash and cash equivalents and restricted cash at beginning of periodCash and cash equivalents and restricted cash at beginning of period81,259 76,003 Cash and cash equivalents and restricted cash at beginning of period91,456 81,259 
Cash and cash equivalents and restricted cash at end of periodCash and cash equivalents and restricted cash at end of period$85,977 $70,509 Cash and cash equivalents and restricted cash at end of period$914,189 $85,977 
Supplemental disclosure of cash and cash equivalents and restricted cash:Supplemental disclosure of cash and cash equivalents and restricted cash: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: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: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 equivalentsCash and cash equivalents$47,847 $16,990 Cash and cash equivalents$912,532 $47,847 
Restricted cashRestricted cash38,130 53,519 Restricted cash1,657 38,130 
Total cash and cash equivalents and restricted cashTotal cash and cash equivalents and restricted cash$85,977 $70,509 Total cash and cash equivalents and restricted cash$914,189 $85,977 



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Supplemental cash flow information:
Cash paid for interest$226,329 $171,418 
Cash paid for income taxes2,117 2,614 
Non-cash investing activities:
Investment in Sonesta$42,000 $


SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(dollars in thousands)

For the Nine Months Ended September 30,
20212020
Supplemental cash flow information:
Cash paid for interest$273,221 $226,329 
Cash paid for income taxes2,577 2,117 
Non-cash investing activities:
Real estate improvements accrued, not paid$7,341 $2,775 
Investment in Sonesta— 42,000 













































The accompanying notes are an integral part of these condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



Note 1. Organization and Basis of Presentation
Service Properties Trust, or we, us or our, is a real estate investment trust, or REIT, organized on February 7, 1995 under the laws of the State of Maryland, which invests in hotels and service-focused retail net lease service oriented retail properties. At September 30, 2020,2021, we owned, directly and through our subsidiaries, 329304 hotels and 804794 net lease properties.
At September 30, 2020,2021, all 304 of our 329 hotels were leased, managed or operated by subsidiaries of the following companies: Sonesta Holdco Corporation, or Sonesta (261 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (9 hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG Marriott International, Inc., or Marriott, Sonesta Holdco Corporation, or Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, and Wyndham Hotels & Resorts, Inc., or Wyndham. We also owned, as of(1 hotel). At September 30, 2020, 8042021, we owned 794 net lease properties with 183175 tenants, including 179 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant. Hereinafter, these companies are sometimes referred to as our managers and/or tenants, or collectively, operators.
Recent EventsImpact of COVID-19

TheSince March 2020, the lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the novel coronavirus, or COVID-19, global pandemic along with the federal, state and local government mandates have disruptedintended to contain and are expectedmitigate the spread of COVID-19 and market reactions to the pandemic. The effects of COVID-19 continue to have a significant negative impact on our results of operations, financial position and cash flow. In the United States, individuals are being encouraged to practice social distancing, are restricted from gathering in large groups, and in some areas, either have been or are subject to mandatory stay-at-home restrictions, which have restricted or prohibited large social gatherings, travel and non-essential activities outside of their homes. As a result, theAlthough lodging industry and other industries in which our managers and tenants operate have been negatively affected.
Our result of operations and cash flows from our hotels are heavily dependent on our operators’ ability to generate returns to us and their willingness to fund shortfalls in our minimum returns from their own resources. IHGdemand has defaulted on its agreement with us and Marriott has not funded shortfalls in the payment of our minimum returns in accordance with its agreement with us. We have provided notices of default and termination of our agreements with both IHG and Marriott and expect to transition the branding and management of the applicable hotels to Sonesta between December 2020 and January 2021. We expect these transitions will result in further disruption to the operations of the transferred hotels and require additional capital expenditures.
As a result of the disruption caused by the COVID-19 pandemic, we have taken various measures to improve our liquidity and financial flexibility. We reduced our quarterly cash dividend on our common shares to $0.01 per common share, reduced planned capital expenditures, worked closely with our hotel operators to significantly reduce our hotels' operating expenses, raised $788,222 of debt proceeds, repaid $350,000 of debt, which represented a substantial portion of our debt that was scheduled to mature in February 2021, sold assets for an aggregate sales price of $74,735 and we are under agreement to sell additional properties for an aggregate sales price of $218,800. On May 8, 2020, we amended the credit agreement that governs our $1,000,000 revolving credit facility and $400,000 term loan. Among other things, the amendment waived certain existing financial covenantsimproved through the end of the firstthird quarter of 2021. Based on the prolonged effect of the pandemic and our expectations of not being able2021 when compared to meet the financial covenants under our amended credit agreement,2020 levels, we entered into an additional amendment on November 5, 2020. Among other things, the amendment waives all of the existing financial covenants through the end of the agreement term, or July 15, 2022, or the New Waiver Period. Based on these amendments, the cash flows we receive from our net lease portfolio, the financing activities we have completed, and asset dispositions we have completed or expectcannot predict with certainty when business levels may return to complete, we believe we will have sufficient liquidity to meet our obligations for at least the next twelve months. See Notes 6 and 7 for additional information regarding the transactions and other actions described above.historical, pre-pandemic levels.
Basis of Presentation
The accompanying condensed consolidated financial statements of 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, 2019,2020, or our 20192020 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 our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


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 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,credit losses, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets.related intangibles.
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 $92,818$151,506 and $31,920$118,862 as of September 30, 20202021 and December 31, 2019,2020, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $92,698$39,169 and $138,708$70,240 as of September 30, 20202021 and December 31, 2019,2020, 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, 2020, we adopted FASB Accounting Standards Update, or 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. Lease related receivables are governed by the lease accounting under GAAP and are not subject to ASU No. 2016-13. We adopted this standard using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.
Note 3.2. Revenue Recognition
We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income.income (loss). We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
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We report rental income for leased properties in our condensed consolidated statements of comprehensive income.income (loss). We recognize rental income from operating leases on a straight-linestraight line basis over the term of the lease agreements. We reduced rental income by $905 for the three months ended September 30, 2021, increased rental income by $2,370 for the three months ended September 30, 2020 reduced rental income by $3,046 for the three months ended September 30, 2019 and reduced rental income by $298$3,087 and $7,368$298 for the nine months ended September 30, 20202021 and 2019,2020, respectively, to record scheduled rent changes under certain of our retail 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-linestraight line basis. See Notes 65 and 109 for further information regarding our TA leases. Due from related persons includes $37,223$24,113 and $47,057 at September 30, 2020 and December 31, 2019, respectively,$33,902 and other assets, net, includes $13,377$25,172 and $4,054$16,264 of straight-linestraight line rent receivables at September 30, 20202021 and December 31, 2019,2020, 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 are met and the rent is earned. We had deferred estimated percentage rent of $1,849 and $893 for the three months ended September 30, 2021 and 2020, respectively, and $4,827 and $1,742 for the three and nine months ended September 30, 2020, respectively,2021 and $1,020 and $3,047 for the three and nine months ended September 30, 2019,2020, respectively.
We own all the escrowed reserves for future renovations or refurbishments, or FF&E reserve escrows, for our hotels. We report deposits by our third-party tenants into the escrow accounts as FF&E reserve income. We do not report FF&E reserves for our managed hotels as FF&E reserve income.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Note 4.3. Weighted Average Common Shares
The following table provides a reconciliation ofWe calculate basic earnings per common share by dividing net loss by the weighted average number of our common shares usedoutstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. For the three and nine months ended September 30, 2021 and 2020, there were no dilutive common shares and certain unvested common shares were not included in the calculation of basic and diluted earnings per share:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
(in thousands)
Weighted average common shares for basic earnings per share164,435 164,321 164,397 164,294 
Effect of dilutive securities: Unvested share awards27 38 
Weighted average common shares for diluted earnings per share164,435 164,348 164,397 164,332 
share because to do so would have been antidilutive.
Note 5.4. Real Estate Properties
At September 30, 2020,2021, we owned 329304 hotels with 51,404an aggregate of 48,439 rooms or suites and 804794 service-oriented retail properties with approximately 13,682,478an aggregate of 13,574,656 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 $11,267,175, including $191,202$11,145,815, excluding 6 properties classified as held for sale as of September 30, 2020.2021.
During the nine months ended September 30, 2020, we funded $108,392 for improvements toCapital expenditures made at certain of our properties which, pursuant to the terms of our managementwere $73,218 and lease agreements with our managers and tenants, resulted in increases in our contractual annual minimum returns and rents of $8,047.
During 2020, we completed a comprehensive rebuilding project of our San Juan, PR hotel as a result of damage sustained during Hurricane Maria in 2017. We recorded a $62,386 gain on insurance settlement$108,392 during the nine months ended September 30, 2021 and 2020, for insurance proceeds received for this damage. Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds.
See Note 6 for further information about our management and lease agreements and our fundings of improvements to certain of our properties.respectively.
Acquisitions
WeOn March 9, 2021, we acquired a portfolioland parcel adjacent to a property we own in Nashville, TN for a purchase price of 3 net lease properties during the nine months ended September 30, 2020.$7,709, including acquisition related costs. We accounted for this transaction as an acquisition of assets. Our allocation

Dispositions

During the nine months ended September 30, 2021, we sold 11 properties for an aggregate sales price of the purchase price for this acquisition based on the estimated fair value of the acquired assets is$34,721, excluding closing costs, as presented in the table below.
Acquisition DateLocationPurchase PriceLandBuilding and ImprovementsFurniture, Fixtures and EquipmentIntangible Assets / Liabilities, net
3/12/2020
Various (1)
$7,071 $880 $5,363 $$828 
The sales of these properties do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. As a result, the results of the operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).
(1)On March 12, 2020, we acquired 3 net lease properties with approximately 6,696 square feet in 2 states with leases requiring an aggregate of $387 of annual minimum rent for an aggregate purchase price of $7,071, including acquisition related costs.
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Dispositions
Date of SaleNumber of PropertiesLocationProperty TypeRooms/ Square FeetGross Sales PriceGain/(Loss) on Sale
3/16/20211Chattanooga, TNNet Lease2,797 $375 $(9)
4/1/20211Jacksonville, FLHotel146 9,753 49
4/6/20211Colorado Springs, CONet Lease32,130 1,300 (10)
5/20/20215VariousHotel430 22,263 10,763
6/11/20211Emmitsburg, MDNet Lease3,114 360 47
8/11/20211Soddy Daisy, TNNet Lease2,941 300 (33)
9/30/20211Lincoln, ILNet Lease3,698 370 127
11576/44,680$34,721 $10,934 

In October 2021, we sold 1 net lease property with 7,070 rentable square feet for a sales price of $915, excluding closing costs.

We are currently marketing for sale 68 Sonesta branded hotels (46 extended stay hotels with 5,404 rooms or suites, 19 select service hotels with 2,461 rooms or suites and 3 full service hotels with 895 rooms or suites) located in 27 states with an aggregate net carrying value of $578,982 as of September 30, 2021. We currently expect these sales to be completed by the end of the first quarter of 2022.

We sold 15have also entered into agreements to sell 4 net lease properties with an aggregate of 1,148,411 rentable14,630 square feet and an aggregate carrying value of $1,788 for an aggregate proceedssales price of $69,835,$2,275, excluding closing costs, in 15 separate transactions duringcosts. We currently expect these sales to be completed by the nine months endedend of the fourth quarter of 2021.

As of September 30, 2020. The sales of these properties, as presented in the table below, do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of income. As a result of these sales,2021, we recorded a net gain on sale of real estate of $109 and a loss on sale of real estate of $9,655 during the three and nine months ended September 30, 2020, respectively.
Date of SaleNumber of PropertiesLocationTenantSquare FeetGross Sales Price
1/28/20201Gothenburg, NEVacant31,978 $585 
2/6/20201Rochester, MNVacant90,503 2,600 
2/13/20201Ainsworth, NEVacant32,901 775 
2/14/20201Dekalb, ILVacant5,052 1,050 
3/2/20201Eau Claire, MIHOM Furniture, Inc.98,824 2,600 
3/28/20201Stillwater, OKVacant33,018 400 
5/26/20201Pawtucket, RIVacant22,027 1,610 
5/28/20201Canton, MADestination XL Group, Inc.755,992 51,000 
5/28/20201Phoenix, AZVacant29,434 2,900 
6/25/20201Bellefontaine, OHVacant2,267 440 
7/17/20201Clinton, MDADF Midatlantic LLC2,935 700 
8/20/20201Lancaster, PAChaac Pizza Northeast, LLC3,014 775 
8/26/20201Baton Rouge, LAVacant2,334 750 
8/26/20201Winston Salem, NCVacant32,816 1,300 
9/17/20201Hillard, OHVacant5,316 2,350 
1,148,411 $69,835 
In October and November 2020, we sold 3had 6 net lease properties with an aggregate of 82,62325,327 square feet with an aggregate carrying value of $4,518 for a sale price of $4,900. We have entered into agreements to sell 39 hotels with 4,631 rooms in 18 states with an aggregate carrying value of $181,317 for an aggregate sales price of $218,000. We currently expect the sales of these hotels to be completed in the fourth quarter of 2020. We have also entered into an agreement to sell 1 net lease property with approximately 3,000 square feet with a carrying value of $778 for a sale price of $800. We currently expect the sale of this net lease property to be completed in the fourth quarter of 2020. The sales of these hotel and retail properties are subject to conditions, may not be completed, may be delayed or terms may change.
As of September 30, 2020, we had 40 hotels with 4,794 rooms requiring aggregate annual minimum returns of $38,901 and an aggregate carrying value of $184,467 classified as held for sale and 6 net lease properties with 121,451 square feet with leases requiring aggregate annual minimum rent of $536 and an aggregate carrying value of $6,735 classified as held for sale. See Note 1312 for further information on these properties.
Note 6.5. Management Agreements and Leases
As of September 30, 2020,2021, we owned 329304 hotels which were included in 6 operating agreements and 804794 service orientatedoriented retail properties net leased to 183175 tenants. We do not operate any of our properties.
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Hotel agreements
As of September 30, 2020, 3282021, all 304 of our hotels were leased to our TRSs and managed by independent hotel operating companies and 1 hotel was leased to a third party.companies. As of September 30, 2020,2021, our hotel properties were managed by or leased to IHG, Marriott,separate subsidiaries of Sonesta, Hyatt, Radisson, Marriott and Wyndham,IHG under 6 agreements. These hotel agreements havehad initial terms expiring between 20202021 and 2037. Each of these agreements is for between 91 and 122208 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 15one to 60 years.years . Most of these agreements require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents;returns; (2) deposit a percentage of total hotel sales into 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, fundingpayment of the FF&E reserves,certain management fees, payment of our minimum returns, paymentreimbursement of certain management fees, reimbursementadvances, funding of working capital advancesour FF&E reserves and replenishment of security deposits or guarantees, as applicable.guarantees. Some of our managers or tenants or their affiliates have provided deposits or guarantees to secure their obligations to pay us.
IHGSonesta agreement. Our management agreement with IHG for 103 hotels, or the IHG agreement, provides that, asAs of September 30, 2020, we are to be paid annual minimum returns and rents of $216,551. Pursuant to the IHG agreement, IHG provided us with a security deposit to cover minimum payment shortfalls, if any. Under this agreement, IHG 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 excess2021, Sonesta managed 41 of our minimum returnsfull-service hotels, 157 extended stay hotels and rents, working capital advances and certain63 select service hotels pursuant to management fees, if any. Duringagreements for each of the nine months ended September 30, 2020, we fully utilized the $75,717 security deposit we heldhotels. We are also party to cover shortfalls in hotel cash flows available to pay the minimum returns due to us for the period. The IHG agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. Pursuant to a letter agreement with IHG, during the period from March 1, 2020 through September 30, 2020, IHG was not required to deposit any amounts into its FF&E reserve with respect topooling agreements that combine certain of our hotels that it manages. In addition to our minimum return, this management agreement providesagreements with Sonesta for an annual additional return payment to uspurposes of $12,067 from the hotels' available cash flows aftercalculating gross revenues, payment of hotel operating expenses, funding of the required FF&E reserve, payment of our minimum return, working capital advances, payment of certain management fees and replenishmentdistributions and expansion of the security deposit, if any. In addition, the agreement provides for payment to us of 50% of the hotels' available cash flows after payment to us of the annual additional return amount.
We funded $3,900 for capital improvements to certain of the hotels included in the IHG agreement during the nine months ended September 30, 2020, which resulted in increases in our contractual annual minimum returns of $312. We did 0t fund any capital improvements for hotels included in the IHG agreement during the nine months ended September 30, 2019.

In April 2020, we funded $37,000 of working capital advances under the IHG agreement to cover projected operating losses at our hotels managed by IHG. Working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuantus. Our agreements with Sonesta for 53 hotels expire in January 2037, which we refer to the termsas our legacy management and pooling agreements. As of the IHG agreement.
We realized minimum returns and rents of $9,654 and $51,853 during the three months ended September 30, 2020 and 2019, respectively, and $117,874 and $153,053 during the nine months ended September 30, 2020 and 2019, respectively,2021, 208 of our hotels were managed by Sonesta under this agreement. During July 2020, we applied the then remaining $8,992 of security deposit securing IHG’s obligation under the agreement. We sent notices of default and termination to IHG for failure to pay minimum returns and rents due to us of $36,776 for the third quarter of 2020 andagreements that we will transfer the branding and management of 102 of the 103 hotels to Sonestaexpire on December 1, 2020.31, 2021 and automatically renew for successive one-year terms unless terminated earlier, which we refer to as our conversion hotel management and pooling agreements or collectively with our legacy management and pooling agreements, our Sonesta agreement.
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Marriott agreement. Our management agreement with Marriott for 122 hotels, or the Marriott agreement, provides that, as of September 30, 2020, we are to be paid annual minimum returns of $194,613. Pursuant to the Marriott agreement, Marriott had provided us with a security deposit to cover minimum return payment shortfalls, if any. Under this agreement, this security deposit, if utilized, may be replenished and increased up to $64,700 from 60% of the cash flows realized from operations of the 122 hotels after payment of the aggregate annual minimum returns, Marriott’s base management fees and working capital advances, if any. Marriott had also provided us with a $30,000 limited guaranty to cover payment shortfalls up to 85% of our minimum returns after the available security deposit balance has been depleted. During the nine months ended September 30, 2020, we fully utilized the $33,423 security deposit we then held and exhausted the $30,000 limited guaranty to cover shortfalls in hotel cash flows available to pay the minimum returns due to us for the period. This limited guaranty expired when it was exhausted. The Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under the Marriott agreement for the remainder of 2020.
We funded $50,415 and $34,378 for capital improvements to certain of the hotels included in the Marriott agreement during the nine months ended September 30, 2020 and 2019, respectively, which resulted in increases in our contractual annual minimum returns of $4,039 and $3,252, respectively.
We and Marriott identified 33 of the 122 hotels covered by the Marriott agreement that will be sold or rebranded, at which time we will retain the proceeds of any such sales and the aggregate annual minimum returns due to us would decrease by the amount allocated to the applicable hotel. As of September 30, 2020, 24 of these hotels with 2,989 rooms requiring annual minimum returns of $31,359 with an aggregate carrying value of $140,798 are under agreement to be sold.
During the nine months ended September 30, 2020, we funded $30,000 of working capital advances under the Marriott agreement to cover projected operating losses at our hotels managed by Marriott. These working capital advances are reimbursable to us from shares of future cash flows from the hotel operations in excess2021, Sonesta operated 261 of the minimum returns due to us and Marriott’s base management fees, if any, pursuant to the terms of the Marriott agreement.
We realized minimum returns of $14,369 and $47,794 during the three months ended September 30, 2020 and 2019, respectively, and $91,076 and $142,562 during the nine months ended September 30, 2020 and 2019, respectively, under this agreement. We sent notices to Marriott terminating our agreement for its failure to cover the $23,952 cumulative shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us for the nine months ended September 30, 2020. The effective date of the termination is January 31, 2021 and304 hotels we currently plan to transfer to Sonestaown, which comprised approximately 52.9% of our total historical real estate investments. In February and March 2021, we transitioned the branding and management of the 9888 hotels to the extent not sold. We also expect to transfer to Sonesta from Marriott and, in December 2020June 2021, we transitioned the branding and management of 95 hotels to Sonesta from Hyatt. On November 1, 2021, we previously expected to sell.
Sonesta agreement. As of September 30, 2020, Sonesta managed 16 of our full-service hotelstransitioned the branding and 40 of our extended stay hotels pursuant to management agreements for each of the hotels, which we refer to collectively as our Sonesta agreement, and a related pooling agreement, which combines certain of 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.
On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our existing business arrangements as follows:
We and Sonesta had agreed to sell, rebrand or repurpose our 39 extended stay hotels then managed by Sonesta. Based on current market conditions, we have decided not to pursue the sale of these 39 hotels at this time;
The annual minimum returns due for the 14 full-service hotels that Sonesta continues to manage were reduced from $99,013 to $69,013 as of that date;
Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta;
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We and Sonesta modified our then existing Sonesta agreement and pooling agreement so that 5% of the hotel gross revenues of each of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the annual minimum returns due to us under the Sonesta agreement;
We and Sonesta modified our then existing Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause,” casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full-service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed; and
We and Sonesta extended the initial expiration date of the then existing management agreements for our full-service hotels managed by Sonesta located in Chicago, IL and Irvine, CA to January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta.
Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement.
We previously leased 48 vacation units to Wyndham Destinations, Inc. (NYSE: WYND), or Destinations, at our full service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham. Effective March 1, 2020, Sonesta commenced managing those units and those units were added to our Sonesta agreement for that Chicago hotel.
Between September 18, 2020 and October 1, 2020, Sonesta assumed management of 4 hotels previously managed by Wyndham.1 additional hotel to Sonesta from Radisson. We entered into management agreements with Sonesta with respect to these 4 hotels on terms substantially consistent with our other applicable management agreements with Sonesta in effect following the restructuring of our business arrangement with Sonesta on February 27, 2020, except that the management agreements are scheduled to terminate on December 31, 2021. The management agreements for these hotels have not been added to our pooling agreement with Sonesta.

As noted above, our management agreements with IHG for 103 of our hotels are scheduled to terminate effective November 30, 2020, and our management agreements with Marriott for 122 of our hotels are scheduled to terminate effective January 31, 2021. Management of 200 of these hotels to the extent not previously sold, is expected to be assumed by Sonesta. As we transitionour conversion hotel management of these hotels, we expect that we will enter managementand pooling agreements with Sonesta on terms similar to those for 4 hotels formerly managed by Wyndham that were transitioned to Sonesta management between September 18, 2020 and October 1, 2020, as further described above.

Sonesta.
Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, 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 $124,795$510,226 as of September 30, 2020.2021. Our Sonesta agreement further provides that we are paid an additional return based uponequal to 80% of the operating profits, as defined therein, after reimbursement of owner or manager advances, FF&E reserve escrows and Sonesta’s incentive fee, if applicable. Our Sonesta hotels generated net operating lossescash flow of $40,728 and a net operating cash flow deficit of $6,155 and returns of $15,629 duringfor the three months ended September 30, 20202021 and 2019,2020, respectively, and net operating lossescash flow of $28,531 and net operating cash flow deficit of $31,969 and returns of $57,794 duringfor the nine months ended September 30, 2021 and 2020, and 2019, respectively, under our Sonesta agreement. We do not have any security deposits or guarantees for our Sonesta hotels. Accordingly, therespectively. The returns we receive from our Sonesta hotels are limited to the hotels’ available cash flows, if any, after payment of operating expenses, including management and related fees. In addition to our minimum returns, the management agreement provides for payment of 80% of hotel cash flows after payment of hotel operating expenses including certain management fees to Sonesta, our minimum return, working capital advances and any FF&E reserves.
During the three and nine months ended September 30, 2020, we funded $6,836 and $14,187, respectively, of working capital advances under our Sonesta agreement to cover projected operating losses at our hotels managed by Sonesta. These working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Sonesta agreement.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third-party reservation transmission fees of $3,831 $26,640and $9,313$3,831 for the three months ended September 30, 2021 and 2020, respectively, and 2019, respectively,$59,962 and $12,756 and $28,016 for the nine months ended September 30, 2021 and 2020, respectively. These fees and 2019, respectively.costs are included in hotel operating expenses in our condensed consolidated statements of comprehensive income (loss). In addition, we incurred procurement and construction supervision fees payable to Sonesta of $184 and $928 for each of the three months ended September 30, 2021 and 2020, and 2019, respectively,$1,571 and $1,087 and $1,914 for the nine months ended September 30, 2021 and 2020, and 2019, respectively, pursuant to our Sonesta agreement. Thesewhich amounts are included in hotel operating expenses or have been capitalized as appropriate, in our condensed consolidated financial statements.balance sheets and are depreciated over the estimated useful lives of the related capital assets.
Our Sonesta agreement does not require FF&E escrow deposits for our extended stay hotels managed by Sonesta and, prior to February 27, 2020, did not require FF&E escrow deposits for our full-service hotels managed by Sonesta, but does and did, as applicable, requirerequires us to fund capital expenditures that we approve or approved at our Sonesta hotels. Each of our 14 full-service hotels operated under the legacy management agreements and all the hotels operated under the conversion hotel management agreements require that 5% of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the annual minimum returns due to us. Our legacy management agreements do not require FF&E escrow deposits for 39 extended stay hotels. No FF&E escrow deposits were required during the three and nine months ended September 30, 2020.2021. We funded $48,119 and $67,495incurred capital expenditures for renovations and other capital improvements to certain hotels included in our Sonesta agreement of $76,035 and $48,119 during the nine months ended September 30, 20202021 and 2019,2020, respectively, which resulted in increases in our contractual annual minimum returns of $3,622$6,083 and $4,140,$3,622, respectively. We owed Sonesta $3,564$5,016 and $15,537$26,096 for capital expenditureexpenditures, and other reimbursements at September 30, 20202021 and December 31, 2019,2020, 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.

We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations. We had advanced $55,977 and $41,514 of initial working capital to Sonesta as of September 30, 2021 and December 31, 2020, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. Any remaining working capital would be returned to us upon termination in accordance with the terms of our Sonesta agreement.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)

Accounting for Investment in Sonesta:
We account for our 34% non-controlling interest in Sonesta under the equity method of accounting. In March 2021, we funded a $25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation. We continue to maintain our 34% ownership in Sonesta after giving effect to this funding. As of September 30, 2020,2021, our investment in Sonesta had a carrying value of $43,073.$62,143. This amount is included in other assets, net in our condensed consolidated balance sheets. The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total shareholders’ equity book value on the date of acquisition of our initial equity interest in Sonesta, February 27, 2020, by an aggregate of $8,000. As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition. We recorded amortization of the basis difference of $65 in each of the three months ended September 30, 2021 and 2020 and $195 and $151 infor the three and nine months ended September 30, 2021 and 2020, respectively. We recognized lossesincome of $1,369$2,158 and $4,305a loss of $1,369 related to our investment in Sonesta for the three months ended September 30, 2021 and 2020, respectively, and income of $50 and a loss of $4,305 for the nine months ended September 30, 2021 and 2020, respectively. These amounts are included in equity in earnings (losses) of an investee in our condensed consolidated statements of comprehensive income.income (loss).
We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta. This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight-line basis through January 31, 2037, the remaining term of the Sonesta agreement as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income.income (loss). We reduced hotel operating expenses by $621 for each of the three months ended September 30, 2021 and 2020, respectively, and $1,863 and $1,448 for the three and nine months ended September 30, 2021 and 2020, respectively, for amortization of this liability. As of September 30, 2020,2021, the unamortized balance of this liability was $40,552.$38,068.
See Note 109 for further information regarding our relationship, agreements and transactions with Sonesta.
Hyatt agreementagreement.. Our management On June 7, 2021, we and Hyatt amended our previous agreement with Hyatt for 22 hotels we own, or our Hyatt agreement. Under our amended Hyatt agreement, provides that, asHyatt will continue to manage 17 of September 30, 2020,the hotels we are to be paid anown for a 10 year term effective April 1, 2021. Our amended Hyatt agreement sets our annual minimum return at $12,000 and Hyatt provided us with a new $30,000 limited guarantee for 75% of $22,037. the aggregate annual minimum returns due to us beginning in 2023. Under our amended Hyatt agreement, a management fee of 5% of gross room revenues payable to Hyatt will be an operating cost paid senior to our minimum return. Hyatt may also earn a 20% incentive management fee after payment of our annual minimum return and reimbursement of certain advances, if any. We also agreed to fund approximately $50,000 of renovations that are expected to be completed by the end of 2022. As described above, we transitioned the branding and management of the remaining 5 hotels that Hyatt previously managed to Sonesta in June 2021.
We realized minimum returns of $2,768 and $5,509 during each of the three months ended September 30, 2021 and 2020, respectively, and 2019 and minimum returns of $6,634 and $16,528 during each of the nine months ended September 30, 2021 and 2020, and 2019respectively, under this agreement. Pursuant to our Hyatt agreement,agreement. Any returns we receive from Hyatt has provided us with a guaranty, which isare currently limited to $50,000.the hotels’ available cash flows, if any, after payment of operating expenses. During the nine months ended September 30, 2020,2021, we expensed $3,700 of working capital we previously funded under our Hyatt agreement because the amount is no longer expected to be recoverable. This amount is included in transaction related costs in our condensed consolidated statement of income (loss).
Radisson agreement. On November 1, 2021, we and Radisson amended our previous agreement for 9 hotels under thiswe own, or our Radisson agreement. Under our amended Radisson agreement, generated cash flows that were less thanRadisson will continue to manage 8 of the 9 hotels we own for a 10 year term effective August 1, 2021. Our amended Radisson agreement sets our annual minimum return at $10,200 and Radisson provided us with a new $22,000 limited guarantee for 75% of the aggregate annual minimum returns due to us beginning in 2023. Under our amended Radisson agreement, a management fee of 5% of gross room revenues for each hotel operated under the period,Country Inn & Suites brand and Hyatt made $16,539a management fee of guaranty payments3% of gross room revenues for each hotel managed under the Radisson Hotel brand payable to cover the shortfall. The available balance of the guaranty was $3,116 as of September 30, 2020. In additionRadisson will be an operating cost paid senior to our minimum returns, thisreturn. Radisson may also earn a 20% incentive management agreement provides for payment to us of 50% of the hotels’ available cash flowsfee after payment of operating expenses, funding required FF&E reserves, payment of our annual minimum return our working capital advances and reimbursement of certain advances, if any. We also agreed to Hyattfund approximately $12,000 of working capitalrenovations that are expected to be completed by the end of 2022. As described above, we transitioned the management and guaranty advances.branding of the ninth hotel that Radisson previously managed to Sonesta on November 1, 2021.

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


During the nine months ended September 30, 2020, we funded $3,700 of working capital advances under our Hyatt agreement to cover projected operating losses at our hotels managed by Hyatt. Working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Hyatt agreement.
Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve, subject to available cash flow.
Radisson agreement. Our management agreement with Radisson for 9 hotels, or our Radisson agreement, provides that, as of September 30, 2020, we are to be paid annual minimum returns of $20,442. We realized minimum returns of $5,111$1,822 and $5,099$5,111 during the three months ended September 30, 20202021 and 2019,2020, respectively, and minimum returns of$11,878 and $15,332 and $14,945 during the nine months ended September 30, 20202021 and 2019,2020, respectively, under thisour Radisson agreement. Pursuant to our Radisson agreement, Radisson hashad provided us with a guaranty, which iswas limited to $47,523. During the nine months ended September 30, 2020,2021, the hotels under thisour Radisson agreement generated cash flows that were less than the minimum returns due to us for the periodperiods and Radisson made $21,729$13,238 of guaranty payments to cover the shortfall. The available balancepart of the shortfall and the Radisson guaranty was $19,487 asexhausted.

Marriott agreement. As of January 1, 2021, Marriott managed 105 of our hotels under agreements we had terminated in 2020 for Marriott’s failure to pay the cumulative shortfall between the payments we had received and 80% of the cumulative priority returns due to us in accordance with the agreement. We transitioned the branding and management of 88 Marriott managed hotels to Sonesta in February and March 2021. We sold 1 hotel that Marriott managed in April 2021 (see Note 4 for further information regarding this sale). As of September 30, 2020. In addition to2021, Marriott managed 16 of our minimum returns, our Radisson agreement provides for paymenthotels. We are in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to us, including Marriott’s assertion that we are required to refund $19,120 of 50%minimum return advances made to us in 2020, and the validity of the timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels encumbered with a Marriott brand. We are also seeking repayment of certain working capital advances we made to Marriott during 2020. We have entered an agreement with Marriott regarding the 16 hotels noted above, pursuant to which we agreed to have these hotels remain Marriott branded hotels until the arbitration is resolved.
Our Marriott hotels generated net operating cash flow of $4,685 and a net operating cash flow deficit of $7,895 during the three and nine months ended September 30, 2021, respectively. Any returns we receive from Marriott are limited to the hotels’ available cash flows, if any, after payment of operating expenses, funding the required FF&E reserve, payment of our minimum returns, our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any.
Our Radisson agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effective April 1, 2020, we and Radisson have agreed to suspend contributions to the FF&E reserve under our Radisson agreement for the remainder of 2020.
Wyndham agreements. As of September 30, 2020, 17expenses. Marriott managed 122 of our hotels were operated under a management agreement with Wyndham. Induring the three and nine months ended September 2020, we amended the management agreement with Wyndham so that it will continue as the manager30, 2020. We realized returns of these Wyndham$14,369 and $91,076 from our Marriott branded hotels for a limited period. Under the amended terms of this agreement, we will pay Wyndham a management fee of 7% of hotel revenues, subject to certain minimums. In September 2020, we rebranded 3 hotels previously managed by Wyndham to Sonesta and on October 1, 2020, 1 additional hotel previously managed by Wyndham was rebranded to Sonesta. We expect to sell 15 Wyndham branded hotels in the fourth quarter of 2020.
Our Wyndham hotels generated a net operating losses of $4,413 and returns of $5,944 during the three and nine months ended September 30, 2020, respectively. We incurred capital expenditures for certain hotels included in our Marriott agreement of $7,319 and 2019, respectively, and a net operating losses of $8,160 and net operating losses of $17,780$50,415 during the nine months ended September 30, 20202021 and 2019,2020, respectively.

Other. Our management agreement with IHG for 1 hotel expires on January 31, 2026. Our IHG hotel generated net operating cash flow of $962 and a net operating cash flow deficit of $384 during the three and nine months ended September 30, 2021, respectively. Any returns we receive from IHG are limited to the hotels’ available cash flows, if any, after payment of operating expenses. IHG managed or leased 103 of our hotels during the three and nine months ended September 30, 2020. We funded $1,540realized returns of $9,654 and $2,283 for capital improvements at certain of the hotels included in$117,874 under our WyndhamIHG agreement during the three and nine months ended September 30, 2020, and 2019, respectively.
As of September 30, 2020 we have funded $6,316 of working capital advances under our Wyndham agreement to cover projected operating losses at our hotels managed by Wyndham.
Net lease portfolio
As of September 30, 2020,2021, we owned 804794 service-focused retail net lease service-oriented retail properties with 13.7 million13,574,656 square feet with leases requiring annual minimum rents of $369,803$370,945 with a weighted (by annual minimum rents) average remaining lease term of 11.010.3 years. The portfolio was 98%98.2% leased by 183175 tenants operating under 129134 brands in 2221 distinct industries.
TA leases
TA isAs a result of the COVID-19 pandemic, some of our largesttenants requested rent assistance. During the three months ended September 30, 2021, we entered into a rent deferral agreement for $2,852 of rent with 1 net lease tenant. As of September 30, 2021, we had $10,827 of deferred rents outstanding related to 15 tenants we granted rent relief to pursuant to such requests who represented approximately 2.9% of our annualized rental income of our net lease retail portfolio as of September 30, 2021. These deferred rents are included in other assets, net in our condensed consolidated balance sheets. These tenants are obligated to pay, in most cases, the deferred rent over a 12 to 24 month period. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic and account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance as the resulting cash flows from the modified lease are substantially the same as or less than the original lease. The deferred amounts did not impact our operating results for the three or nine months ended September 30, 2021.
We continually review receivables related to rent, straight-line rent and property operating expense reimbursements and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes an assessment of whether substantially all of the amounts due under a tenant’s lease are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)

For leases that are deemed not probable of collection, revenue is recorded as cash is received. We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income. We reduced our reserves for uncollectible amounts and increased rental income by $5,373 for the three months ended September 30, 2021 based on our assessment of collectibility and cash received from certain tenants. We recorded reserves for uncollectible amounts against rental income of $2,369 for the three months ended September 30, 2020, we leasedand $588 and $7,689 for the nine months ended September 30, 2021 and 2020, respectively. We had reserves for uncollectible rents of $16,434 and $18,230 as of September 30, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.

TA leases. TA is our largest tenant, leasing 26.7% of our gross carrying value of real estate properties as of September 30, 2021. We lease to TA a total of 179 travel centers under 5 leases that expire between 2029 and 2035, subject to TA’s right to extend those leases, and require annual minimum rents of $246,110 which represented approximately 25.6% of our total annual minimum returns and rents$246,111 as of September 30, 2020.2021. In addition, TA is required to pay us previously deferred rent obligations in quarterly installments of $4,404 through January 31, 2023. TA paid $4,404 and $13,212 of deferred rent to us for the three and nine months ended September 30, 2021 and 2020, respectively. The remaining balance of previously deferred rents was $44,036$26,420 and $39,632 as of September 30, 2020.
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(dollars in thousands, except share data)
(Unaudited)


We recognized rental income from TA of $61,528$62,116 and $62,537$61,528 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $184,583$186,357 and $188,227$184,583 for the nine months ended September 30, 20202021 and 2019,2020, respectively. Rental income was reduced by $3,267 and $3,250 for the three months ended September 30, 20202021 and 2019 includes $3,250 and $3,3902020, respectively, and $9,789 and $9,834 for the nine months ended September 30, 2021 and 2020, and 2019, includes $9,834 and $7,880, 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, 20202021 and December 31, 2019,2020, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $58,648$46,660 and $68,653,$55,530, respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets.
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, 2020 or 2019.
In addition to the rental income that we recognized during the three months ended September 30, 20202021 and 20192020 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 $893$1,849 and $1,020$893 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $1,742$4,827 and $3,047$1,742 for the nine months ended September 30, 2021 and 2020, respectively.
Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and 2019, respectively.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 not fund any capital improvements to our properties that we leased to TA during each of the three and nine months ended September 30, 2021 or 2020.
See Note 109 for further information regarding our relationship with TA.
Other net lease agreements
Our other net lease agreements generally provide for minimum rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight-line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We recognized rental income from our 625 other net lease properties (excluding TA) of $36,608 and $34,574 for the three months ended September 30, 2021 and 2020, respectively, which included $2,361 and $5,620, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis and $99,594 and $106,804 for the three and nine months ended September 30, 2021 and 2020, respectively, which included $5,620$6,702 and $11,433, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis. We recognized rental income of $5,485 for the three and nine months ended
Note 6. Indebtedness
Our principal debt obligations at September 30, 2019, which included $2582021 were: (1) $1,000,000 of adjustments to record scheduled rent changesoutstanding borrowings under certainour $1,000,000 revolving credit facility; and (2) $6,200,000 aggregate outstanding principal amount of our leases onsenior unsecured notes. Our revolving credit facility is governed by a straight-line basis.
Ascredit agreement with a resultsyndicate of the COVID-19 pandemic, some of our tenants have requested rent assistance. During the three months ended September 30, 2020, we collected 87.2% of rents from our other net lease tenants. In October 2020, we collected 87.4% of rents due to us from our other net lease tenants. We have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53,413 of annual minimum rents. These amounts do not include tenants that have withdrawn previously approved deferral requests. Generally these rent deferrals are for one to four months of rent and were payable by the tenants over a 12 to 24 month period beginning in September 2020. We have deferred an aggregate of $13,437 of rent as of November 6, 2020.
We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease. Because the deferred rents referenced above will be repaid over a 12 to 24 month period, the cash flows from the respective leases are substantially the same as before the rent deferrals.
We continually review receivables related to rent, straight-line rent and property operating expense reimbursements and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Theinstitutional lenders.
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(dollars in thousands, except share data)
(Unaudited)


review includes an assessment of whether or not substantially all of the amounts due under a tenant’s lease are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income and do not record an allowance for uncollectible accounts. We recorded reserves for uncollectible amounts against rental income of $2,369 and $7,689 for the three and nine months ended September 30, 2020, respectively. We had reserves for uncollectible rents of $13,777 and $5,981 as of September 30, 2020 and December 31, 2019, respectively, included in other assets on our condensed consolidated balance sheets.
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, it does not result in additional cash flows to us of the deficiency amounts, but reduces the refunds due to the respective tenants or managers that have provided us with these security deposits upon expiration of the applicable 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 applicable agreements. Certain of our guarantees and our security deposits may be replenished by a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us pursuant to the terms of the respective agreements. When our guarantees and 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 $2,405 and $8,519 of guaranty and security deposit replenishments for the three and nine months ended September 30, 2019, respectively. There were 0 guaranty or security deposit replenishments for the three or nine months ended September 30, 2020. When managers of our hotels are required to fund the shortfalls of minimum rents 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. We reduced hotel operating expenses by $30,474 and $2,404 for the three months ended September 30, 2020 and 2019, respectively, and $222,134 and $21,775 for the nine months ended September 30, 2020 and 2019, respectively.
Note 7. Indebtedness
Our principal debt obligations at September 30, 2020 were: (1) $80,086 of outstanding borrowings under our $1,000,000 revolving credit facility; (2) our $400,000 term loan; and (3) $5,800,000 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.
Our $1,000,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions noted below, 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. We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 205235 basis points per annum, subject to a LIBOR floor of 0.50%, as of September 30, 2020.2021. We also pay a facility fee, which was 30 basis points per annum at September 30, 2020,2021, on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of September 30, 2020,2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.55%2.85%. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.85% and 2.55% for the three months ended September 30, 2021 and 2020, respectively, and 2.85% and 2.38% for the three and nine months ended September 30, 2020, respectively,2021 and 3.10% and 3.34% for the three and nine months ended September 30, 2019,2020, respectively. As of each of September 30, 2020, we had $80,086 outstanding2021 and $919,914 available underNovember 3, 2021, our revolving credit facility. As of November 6, 2020, we had $475,645 outstanding and $524,355 available to borrow under our$1,000,000 revolving credit facility subject to the minimum liquidity requirements underwas fully drawn.
We and our lenders amended our credit agreement described below.
Our $400,000governing our $1,000,000 revolving credit facility in 2020. Among other things, the amendments waived all of the then existing financial covenants through the end of the agreement term, loan, which was scheduled to mature onor July 15, 2023, was prepayable without penalty at any time. We were required to pay interest2022, or the Waiver Period. As a result of the amendments, among other things:
we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by the amount outstanding under our term loan at the ratepledged subsidiaries with an undepreciated book value of LIBOR plus a premium, which was 225 basis points per annum, subject to a LIBOR floor of 0.50%,$1,834,420 as of September 30, 2020. The interest rate premium was subject2021 to adjustment based on changes tosecure our obligations under the credit ratings. As of September 30, 2020, the annual interest rate for the amount outstanding under our term loan was 2.75%. The weighted average annual interest rate for borrowings under our term loan was 2.75% and 2.73% for the three and nine months ended September 30, 2020, respectively, and 3.35% and 3.51% for the three and nine months ended September 30, 2019, respectively.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)

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

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

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

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

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

we may not, during the Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances.

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 The RMR Group LLC, or RMR LLC, ceasing to act as our business manager. Our credit agreement and our unsecured senior notes indentures and their supplements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. Our credit agreement also currently restricts our ability to make certain investments. We believeAs of September 30, 2021, we were not in compliance with the terms and conditionsone of our credit agreement, subjectdebt covenants necessary to the waiver described below,incur additional debt, and our unsecured senior notes indentures and their supplements at September 30, 2020.
We and our lenders amended our credit agreement governing our $1,000,000 revolving credit facility and $400,000 term loan on May 8, 2020 and again on November 5, 2020. The May 2020 amendment provided a waiver of certain of the financial covenants under our credit agreement through March 31, 2021, or the Waiver Period, during which, subject to certain conditions, we continued to have access to undrawn amounts under the credit facility.
During the Waiver Period, and continuing thereafter until such time as we had demonstrated compliance with certain of our financial covenants as of June 30, 2021:
we were required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000;
our interest rate premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points;
our ability to pay distributions on our common shares was limited to amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes, and to pay a cash dividend of $0.01 per common share per quarter;
result, we were subject to certain additional covenants, including additional restrictions on our abilitywill not be able to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases);
additional debt until we were generallymeet the required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic-related government stimulus programs to the repayment of outstanding loans under the credit agreement; and
we pledged equity interests in certain of our property owning subsidiaries to secure our obligations under the credit agreement. These subsidiaries owned properties with $1,028,155 of undepreciated book value as of September 30, 2020.
As a result of the November 5, 2020 amendment:covenant level.

all existing financial covenants have been waived through the New Waiver Period;
15
we repaid our $400,000 term loan on November 5, 2020 using undrawn amounts under our revolving credit facility;
we have pledged certain additional equity interests of subsidiaries owning properties. Following the closing of the amendment, we will provide first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1,837,392 as of September 30, 2020 to secure our obligations under the credit agreement;
we have the ability to fund up to $250,000 of capital expenditures per year and up to $50,000 of certain other investments per year as defined in the credit agreement;
the interest rate premium over LIBOR under our revolving credit facility increased by 30 basis points;
certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions), and the minimum liquidity requirement of $125,000 will remain in place during the New Waiver Period; and
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to the repayment of outstanding loans under the credit agreement, and then to other debt maturities.

On June 17, 2020, we issued $800,000 principal amount of our 7.50% unsecured senior notes due 2025. The aggregate net proceeds from this offering was $788,222, after underwriting discounts and other offering expenses. These notes are fully and unconditionally guaranteed by certain of our subsidiaries. The subsidiaries in the guarantee pool may change from time to time as subsidiaries are allocated to or from the pledge pool for our credit agreement or for certain other reasons. Each subsidiary guarantor’s guarantee will automatically terminate and each subsidiary guarantor will automatically be released from all of its obligations under its guarantee and the indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investors Service, Inc., or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or Standard & Poor’s, or if Moody’s or Standard & Poor’s ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture governing the notes.
On June 17, 2020, we repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 at a total cost of $355,971 excluding accrued interest pursuant to a cash tender offer. We recorded a loss of approximately $6,970, net of discount and deferred financing costs, on extinguishment of debt during the nine months ended September 30, 2020. We funded this purchase using borrowings under our revolving credit facility.
Note 8.7. Shareholders' Equity
Distributions
During the ninethree months ended September 30, 2020,2021, we declared and paid regular quarterly distributions to common shareholders as follows:
Declaration DateRecord DatePaid DateDividend Per Common ShareTotal Distributions
January 16, 2020January 27, 2020February 20, 2020$0.54$88,863
March 30, 2020April 21, 2020May 21, 20200.01 1,646
July 16, 2020July 27, 2020August 20, 20200.01 1,646
$0.56$92,155
Declaration DateRecord DatePaid DateDividend Per Common ShareTotal Distributions
January 14, 2021January 25, 2021February 18, 2021$0.01 $1,648 
April 15, 2021April 26, 2021May 20, 20210.01 1,648 
July 15, 2021July 26, 2021August 19, 20210.01 1,648 
$0.03 $4,944 
On October 15, 2020,14, 2021, we declared a regular quarterly distribution to common shareholders of record onas of October 26, 202025, 2021 of $0.01 per share, or $1,646.$1,651. We expect to pay this amount on or about November 19, 2020.18, 2021.
Common Share Awards
On February 27, 2020,June 16, 2021, in accordance with our Trustee compensation arrangements, we awarded 3,000to each of our 7 Trustees 7,000 of our common shares, valued at $18.64$13.94 per common share, the closing price of our common shares on The Nasdaq Stock Market, LLC, or Nasdaq, on that day to each of our 2 new Trustees in connection with their election to our Board of Trustees.day.
On June 10, 2020, in accordance with our Trustee compensation arrangements,September 15, 2021, we awarded 5,000under our equity compensation plan an aggregate of 291,700 of our common shares, valued at $10.80 per common share, the closing price of our common shares on Nasdaq on that day to each of our 7 Trustees as part of their annual compensation.
On September 17, 2020, we awarded an aggregate of 264,400 of our common shares, valued at $8.44$10.82 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other current and former officers and employees of RMR LLC under our equity compensation plan.LLC.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Common Share RepurchasesPurchases
During the quarternine months ended March 31, 2020,September 30, 2021, we purchased an aggregate of 2,63770,795 of our common shares valued at a weighted average price per common share of $16.36, based on the closing price of our common shares on Nasdaq, on the date of repurchase,$11.10 per share, from certain former employees of RMR LLC, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
During the quarter ended June 30, 2020, we purchased an aggregate of 3,808 of our common shares valued at a weighted average price per common share of $7.09, based on the closing price of our common shares on Nasdaq, on the date of repurchase, from a former officer and 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 21, 2020, we purchased an aggregate of 38,156 of our common shares valued at a weighted average price per common share of $7.40, based on the closing price of our common shares on Nasdaq, on the date of repurchase, from certain of our officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Note 9.8. Business and Property Management Agreements with RMR LLC
We have 0no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have 2 agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, excluding properties leased to TA, and the office building component of one of our hotels and to major renovation or repositioning activities at our hotels.
Pursuant to our business management agreement, weWe recognized net business management fees payable to RMR LLC of $8,641$10,794 and $9,919$8,641 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $27,613$31,836 and $29,307$27,613 for the nine months ended September 30, 20202021 and 2019,2020, respectively. Based on our common share total return, as defined in our business management agreement, as of each of September 30, 20202021 and 2019,2020, no incentive fees are included in the net business management fees we recognized for the three or nine months ended September 30, 20202021 or 2019.2020. The actual amount of annual incentive fees for 2020,2021, 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, 2020,2021, and will be payable in 2021.January 2022. We did not incur an incentive fee payable to RMR LLC for the year ended December 31, 2019.2020. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income.income (loss).
We and RMR LLC amended our business management agreement effective August 1, 2021 to replace the benchmark index used in the calculation of incentive management fees. Pursuant to our propertythe amendment, for periods beginning on and after August 1, 2021, the MSCI U.S. REIT/Hotel & Resort REIT Index will replace the discontinued SNL U.S. REIT Hotel Index and be used to calculate benchmark returns per share for purposes of determining any incentive management agreement withfee payable by us to RMR LLC, weLLC. For periods prior to August 1, 2021, the SNL U.S. REIT Hotel Index will continue to be used. Accordingly, the
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)

calculation of incentive management fees for the next three measurement periods will continue to use the SNL U.S. REIT Hotel Index in calculating the benchmark returns for periods through July 31, 2021. This change of index was due to S&P Global, Inc. ceasing to publish the SNL U.S. REIT Hotel Index.
We recognized property management and construction supervision fees payable to RMR LLC of $781$1,384 and $163$781 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $2,722$3,267 and $201$2,722 for the nine months ended September 30, 2021 and 2020, respectively. Of those amounts, for the three months ended September 30, 2021 and 2019, respectively. These amounts are included in2020, $1,002 and $781, respectively, of property management fees were expensed to other operating expenses or have been capitalized, as appropriate, in our condensed consolidated statements of comprehensive income.income (loss) and $382 of construction and supervision fees were capitalized for the three months ended September 30, 2021. For the nine months ended September 30, 2021 and 2020, $2,683 and $2,710, respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $584 and $12, respectively, of construction and supervision fees were capitalized. The amounts capitalized are included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.
We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the applicable employment and related expenses of RMR LLC employees assigned to work exclusively or partly at our net lease properties, (excluding properties leased to TA) and the office building component of one of our hotels, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, and as otherwise agreed. We reimbursed RMR LLC $258$679 and $136$258 for these expenses and costs for the three months ended September 30, 20202021 and 2019,2020, respectively, and $525$2,016 and $478$525 for the nine months ended September 30, 20202021 and 2019,2020, respectively. We included these amounts in other operating expenses and selling, general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.income (loss).

On June 22,

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Notesany major capital projects and repositioning activities at our hotels, including our hotels that are managed by Sonesta, as we may request from time to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)time. RMR LLC will receive the same fee previously paid to Sonesta for these services, which is equal to 3% of the cost of any such major capital project or repositioning activity.


Note 10.9. Related Person Transactions
We have relationships and historical and continuing transactions with TA, Sonesta, RMR LLC, The RMR Group, Inc., or RMR Inc., and others affiliated withrelated to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned operating subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, asis the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc. and is, 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 officer and employee of RMR LLC. In addition, each of our other officers serves as an officer of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing directortrustee or managing trusteedirector of these publicthose companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.
TA. TA is our largest tenant and property operator, leasing 27.0% of our gross carrying value of real estate properties as of September 30, 2020. We lease 179 of our travel centers to TA under the TA leases. As of September 30, 2020, we owned 1,184,797 shares of TA common stock, representing approximately 8.2% of TA’s outstanding shares of common stock, which amount includes 500,797 shares of TA common stock that we purchased in an underwritten public equity offering in July 2020 at the public offering price of $14.00 per share. RMR LLC provides management services to both us and TA, and Adam D. Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of September 30, 2020, beneficially owned 655,505 shares of TA common stock (including through RMR LLC), representing approximately 4.6% of TA’s outstanding shares of common stock. See Note 6 for further information regarding our relationships, agreements and transactions with TA and Note 13 for further information regarding our investment in TA.

Sonesta.Sonesta is a private company that is majority owned by Adam D. Portnoy, one of our Managing Trustees who also serves as one of Sonesta’s directors, and a person related to him. One of Sonesta’s other directors is our other Managing Trustee, President and Chief Executive Officer and Sonesta’s other director serves as RMR LLC’s and RMR Inc.’s executive vice president, general counsel and secretary and as our Secretary. Sonesta’s chief executive officer and chief financial officer are officers of RMR LLC. Certain other officers and employees of Sonesta are former employees of RMR LLC. RMR LLC also provides certain services to Sonesta. As of September 30, 2020, we owned approximately 34% of Sonesta which managed 56 of our hotels pursuant to our Sonesta agreement. See Note 6 for further information regarding our relationships, agreements and transactions with Sonesta.
Our Manager, RMR LLC. We have 2 agreements with RMR LLC to provide management services to us. See Note 9 for further information regarding our management agreements with RMR LLC. See Note 87 for information relating to the annual share awards we made in September 20202021 to our officers and certain other employees of RMR LLC and common shares we purchased from certain of our officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them. We include amounts recognized as expense for share awards to RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income.

Affiliates Insurance Company, or AICincome (loss). Until its dissolution on February 13, 2020, we, ABP Trust, TA and four other companies to which RMR LLC provides management services owned AIC, an Indiana insurance company, in equal amounts. Certain of our Trustees and certain trustees or directors of the other AIC shareholders served on the board of directors of AIC until its dissolution.

We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


TA. We lease 179 of our travel centers to TA under our TA leases. As of September 30, 20202021, we owned 1,184,797 shares of TA common stock, representing approximately 8.1% of TA’s outstanding shares of common stock. RMR LLC provides management services to both us and December 31, 2019,TA, and Adam D. Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of September 30, 2021, beneficially owned 658,506 shares of TA common stock (including through RMR LLC), representing approximately 4.5% of TA’s outstanding shares of common stock. See Note 5 for further information regarding our relationships, agreements and transactions with TA and Note 12 for further information regarding our investment in AIC hadTA.

Sonesta.Sonesta is a carrying valueprivate company. One of $12our Managing Trustees, Mr. Portnoy, is the controlling shareholder and $298, respectively. These amountsa director of Sonesta. One of Sonesta’s other directors is our other Managing Trustee, President and Chief Executive Officer and Sonesta’s other director serves as RMR LLC’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc. and as our Secretary. Sonesta’s chief executive officer and chief financial officer are included inofficers of RMR LLC. Certain other assets in our condensed consolidated balance sheets. In June 2020, we received an additional liquidating distribution from AICofficers and employees of $286 in connection with AIC’s dissolution. We recognized incomeSonesta are former employees of $83 and $617 relatedRMR LLC. RMR LLC also provides certain services to our investment in AIC for the three and nine months endedSonesta. As of September 30, 2019, respectively,2021, we owned approximately 34% of Sonesta which amounts are included in equity in earningsmanaged 261 of an investee in our condensed consolidated statements of operationshotels. See Note 5 for further information regarding our relationships, agreements and comprehensive loss. transactions with Sonesta.
Our other comprehensive income (loss) attributableManager, RMR LLC. We have 2 agreements with RMR LLC to common shareholdersprovide management services to us. See Note 8 for the three and nine months ended September 30, 2019 includesfurther information regarding our proportionate share of unrealized gains and losses on securities held for sale, which were then owned by AIC, related to our investment in AIC.management agreements with RMR LLC.

For further information about these and certain other such relationships and certain other related person transactions, refer to our 20192020 Annual Report.

Note 11.10. Income Taxes
We have elected to be taxed as a 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 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 months ended September 30, 2021, we recognized an income tax benefit of $55, which includes $139 of foreign taxes and $194 of state tax benefit. During the three months ended September 30, 2020, we recognized an income tax benefit of $296, which includes $123 of foreign tax benefit and $173 of state tax benefit. We recorded a $15,650 deferred tax liability as a result ofDuring the book value to tax basis difference related to the accounting of an insurance settlement in the threenine months ended JuneSeptember 30, 2020. See Note 5 for further information regarding this insurance settlement.2021, we recognized income tax expense of $1,009, which includes $309 of foreign taxes and $699 of state taxes. During the nine months ended September 30, 2020, we recognized income tax expense of $16,706 which includes $379 of foreign taxes, $677 of state taxes and thea $15,650 of deferred tax liability. Duringliability recorded as a result of the three months ended September 30, 2019, we recognized incomebook value to tax expensebasis difference related to the accounting of $467 which includes $229an insurance settlement at one of foreign tax and $238 of state tax benefits. During the nine months ended September 30, 2019, we recognized income tax expense of $1,266 which includes $447 of foreign taxes and $819 of state taxes.our hotels.
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(dollars in thousands, except share data)
(Unaudited)


Note 12.11. Segment Information
We aggregate our hotels and net lease portfolio into 2 reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.
For the Three Months Ended September 30, 2020For the Three Months Ended September 30, 2021
HotelsNet LeaseCorporateConsolidatedHotelsNet LeaseCorporateConsolidated
Revenues:Revenues:    Revenues:    
Hotel operating revenuesHotel operating revenues$199,719 $$$199,719 Hotel operating revenues$338,375 $— $— $338,375 
Rental incomeRental income674 96,102 96,776 Rental income— 98,724 — 98,724 
Total revenuesTotal revenues200,393 96,102 296,495 Total revenues338,375 98,724 — 437,099 
Expenses:Expenses:    Expenses:    
Hotel operating expenses Hotel operating expenses 174,801 174,801 Hotel operating expenses 285,233 — — 285,233 
Other operating expensesOther operating expenses3,705 3,705 Other operating expenses— 4,437 — 4,437 
Depreciation and amortization Depreciation and amortization 64,517 57,687 122,204 Depreciation and amortization 66,065 58,098 — 124,163 
General and administrative General and administrative 12,295 12,295 General and administrative — — 14,231 14,231 
Transaction related costsTransaction related costs— — 3,149 3,149 
Loss on asset impairmentLoss on asset impairment262 9,986 10,248 Loss on asset impairment— — — — 
Total expenses Total expenses 239,580 71,378 12,295 323,253 Total expenses 351,298 62,535 17,380 431,213 
Gain on sale of real estate109 109 
Gain on insurance settlement
Unrealized gain on equity securities5,606 5,606 
Gain on sale of real estate, netGain on sale of real estate, net— 94 — 94 
Unrealized gain on equity securities, netUnrealized gain on equity securities, net— — 24,348 24,348 
Interest income Interest income Interest income — — 203 203 
Interest expense Interest expense (80,532)(80,532)Interest expense — — (92,458)(92,458)
Income (loss) before income taxes and equity in earnings of an investeeIncome (loss) before income taxes and equity in earnings of an investee(39,181)24,833 (87,221)(101,569)Income (loss) before income taxes and equity in earnings of an investee(12,923)36,283 (85,287)(61,927)
Income tax benefitIncome tax benefit296 296 Income tax benefit— — 55 55 
Equity in losses of an investee (1,369)(1,369)
Equity in earnings of an investee Equity in earnings of an investee 2,158 — — 2,158 
Net income (loss)Net income (loss)$(39,181)$24,833 $(88,294)$(102,642)Net income (loss)$(10,765)$36,283 $(85,232)$(59,714)
For the Nine Months Ended September 30, 2020 For the Nine Months Ended September 30, 2021
HotelsNet LeaseCorporateConsolidatedHotelsNet LeaseCorporateConsolidated
Revenues:Revenues:    Revenues:    
Hotel operating revenues Hotel operating revenues $700,578 $$$700,578 Hotel operating revenues $787,463 $— $— $787,463 
Rental incomeRental income3,045 291,387 294,432 Rental income700 286,042 — 286,742 
FF&E reserve income 201 201 
Total revenues Total revenues 703,824 291,387 995,211 Total revenues 788,163 286,042 — 1,074,205 
Expenses:Expenses:    Expenses:    
Hotel operating expenses Hotel operating expenses 492,906 492,906 Hotel operating expenses 723,769 — — 723,769 
Other operating expensesOther operating expenses11,029 11,029 Other operating expenses— 11,758 011,758 
Depreciation and amortization Depreciation and amortization 199,955 177,602 377,557 Depreciation and amortization 200,772 169,436 — 370,208 
General and administrative General and administrative 37,621 37,621 General and administrative (276)1,008 40,108 40,840 
Transaction related costsTransaction related costs23,159 — 5,775 28,934 
Loss on asset impairmentLoss on asset impairment22,622 32,880 55,502 Loss on asset impairment— 2,110 — 2,110 
Total expenses Total expenses 715,483 221,511 37,621 974,615 Total expenses 947,424 184,312 45,883 1,177,619 
Loss on sale of real estate(9,655)(9,655)
Gain on insurance settlement62,386 62,386 
Gain on sale of real estate, netGain on sale of real estate, net10,813 121 — 10,934 
Unrealized losses on equity securities4,409 4,409 
Unrealized gain on equity securities, netUnrealized gain on equity securities, net— — 20,367 20,367 
Interest income Interest income 168 115 283 Interest income — — 485 485 
Interest expense Interest expense (223,679)(223,679)Interest expense — — (273,227)(273,227)
Loss on early extinguishment of debt(6,970)(6,970)
Income (loss) before income taxes and equity in earnings of an investee50,895 60,221 (263,746)(152,630)
Income (loss) before income taxes and equity in losses of an investeeIncome (loss) before income taxes and equity in losses of an investee(148,448)101,851 (298,258)(344,855)
Income tax expense Income tax expense (16,706)(16,706)Income tax expense — — (1,009)(1,009)
Equity in losses of an investee (4,305)(4,305)
Equity in earnings of an investee Equity in earnings of an investee 50 — — 50 
Net income (loss)Net income (loss)$50,895 $60,221 $(284,757)$(173,641)Net income (loss)$(148,398)$101,851 $(299,267)$(345,814)
As of September 30, 2020 As of September 30, 2021
HotelsNet LeaseCorporateConsolidatedHotelsNet LeaseCorporateConsolidated
Total assetsTotal assets$4,900,990 $3,804,679 $91,004 $8,796,673 Total assets$4,609,248 $3,605,271 $1,120,312 $9,334,831 
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(dollars in thousands, except share data)
(Unaudited)


 For the Three Months Ended September 30, 2019
HotelsNet LeaseCorporateConsolidated
Revenues:    
Hotel operating revenues $525,290 $$$525,290 
Rental income5,565 68,054 73,619 
FF&E reserve income 863 863 
Total revenues 531,718 68,054 599,772 
Expenses:    
Hotel operating expenses 377,895 377,895 
Other operating expenses369 1,338 1,707 
Depreciation and amortization 66,929 36,231 103,160 
General and administrative 12,464 12,464 
Total expenses 445,193 37,569 12,464 495,226 
Unrealized loss on equity securities(3,950)(3,950)
Interest income 177 511 688 
Interest expense (52,375)(52,375)
Loss on early extinguishment of debt(8,451)(8,451)
Income (loss) before income taxes and equity in earnings of an investee86,702 30,485 (76,729)40,458 
Income tax expense(467)(467)
Equity in earnings of an investee 83 83 
Net income (loss)$86,702 $30,485 $(77,113)$40,074 
 For the Nine Months Ended September 30, 2019
HotelsNet LeaseCorporateConsolidated
Revenues:    
Hotel operating revenues $1,521,368 $$$1,521,368 
Rental income16,700 193,809 210,509 
FF&E reserve income 3,365 3,365 
Total revenues 1,541,433 193,809 1,735,242 
Expenses:    
Hotel operating expenses 1,076,011 1,076,011 
Other operating expenses1,101 3,318 4,419 
Depreciation and amortization 200,533 101,188 301,721 
General and administrative 36,906 36,906 
Total expenses 1,277,645 104,506 36,906 1,419,057 
Gain on sale of real estate159,535 159,535 
Dividend income1,752 1,752 
Unrealized loss on equity securities(43,761)(43,761)
Interest income 603 1,171 1,774 
Interest expense (151,742)(151,742)
Loss on early extinguishment of debt(8,451)(8,451)
Income (loss) before income taxes and equity in earnings of an investee264,391 248,838 (237,937)275,292 
Income tax expense(1,266)(1,266)
Equity in earnings of an investee 617 617 
Net income (loss)$264,391 $248,838 $(238,586)$274,643 
 As of December 31, 2019
HotelsNet LeaseCorporateConsolidated
Total assets$4,866,549 $4,042,831 $124,587 $9,033,967 
26
 For the Three Months Ended September 30, 2020
HotelsNet LeaseCorporateConsolidated
Revenues:    
Hotel operating revenues $199,719 $— $— $199,719 
Rental income674 96,102 — 96,776 
Total revenues 200,393 96,102 — 296,495 
Expenses:    
Hotel operating expenses 174,801 — — 174,801 
Other operating expenses— 3,705 — 3,705 
Depreciation and amortization 64,517 57,687 — 122,204 
General and administrative — — 12,295 12,295 
Loss on asset impairment262 9,986 — 10,248 
Total expenses 239,580 71,378 12,295 323,253 
Loss on sale of real estate, net— 109 — 109 
Unrealized gain on equity securities, net— — 5,606 5,606 
Interest income — — 
Interest expense — — (80,532)(80,532)
Income (loss) before income taxes and equity in losses of an investee(39,181)24,833 (87,221)(101,569)
Income tax benefit— — 296 296 
Equity in losses of an investee — — (1,369)(1,369)
Net income (loss)$(39,181)$24,833 $(88,294)$(102,642)
 For the Nine Months Ended September 30, 2020
HotelsNet LeaseCorporateConsolidated
Revenues:    
Hotel operating revenues $700,578 $— $— $700,578 
Rental income3,246 291,387 — 294,633 
Total revenues 703,824 291,387 — 995,211 
Expenses:    
Hotel operating expenses 492,906 — — 492,906 
Other operating expenses— 11,029 — 11,029 
Depreciation and amortization 199,955 177,602 — 377,557 
General and administrative — — 37,621 37,621 
Loss on asset impairment22,622 32,880 — 55,502 
Total expenses 715,483 221,511 37,621 974,615 
Loss on sale of real estate, net— (9,655)— (9,655)
Gain on insurance settlement62,386 — — 62,386 
Unrealized gain on equity securities, net— — 4,409 4,409 
Interest income 168 — 115 283 
Interest expense — — (223,679)(223,679)
Loss on early extinguishment of debt— — (6,970)(6,970)
Income (loss) before income taxes and equity in losses of an investee50,895 60,221 (263,746)(152,630)
Income tax expense— — (16,706)(16,706)
Equity in losses of an investee — — (4,305)(4,305)
Net income (loss)$50,895 $60,221 $(284,757)$(173,641)
 As of December 31, 2020
HotelsNet LeaseCorporateConsolidated
Total assets$4,846,410 $3,721,418 $119,491 `$8,687,319 

Table of Contents
SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Note 13.12. Fair Value of Assets and Liabilities
The table below presents certain of our assets and liabilities carried at fair value at September 30, 2020,2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset or liability.asset.
  Fair Value at Reporting Date Using
 Carrying Value atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionSeptember 30, 2020(Level 1)(Level 2)(Level 3)
Recurring Fair Value Measurement Assets:
Investment in TA (1)
$23,151 $23,151 $$
Non-recurring Fair Value Measurement Assets:
Assets of properties held for sale (2)
$191,202 $$191,202 $

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

September 30, 2021December 31, 2020
Carrying ValueFair ValueCarrying ValueFair Value
Recurring Fair Value Measurement Assets:
Investment in TA (Level 1) (1)
$58,991 $58,991 $38,624 $38,624 
Non-Recurring Fair Value Measurement Assets:
Assets of properties held for sale (Level 2) (2)
$3,690 $3,690 $13,543 $13,543 

(1)OurAs of September 30, 2021 and December 31, 2020, we owned 1,184,797 common shares of TA common stock, which are included in other assets in our condensed consolidated balance sheets areand reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares iswas $24,418 as of both September 30, 2021 and December 31, 2020. We recorded unrealized gains of $24,348 and $5,606 during the three months ended September 30, 2021 and 2020, respectively, and unrealized gains of $20,367 and $4,909 during the three and nine months ended September 30, 2020, respectively,2021 and recorded unrealized losses of $3,950 and $43,761 during the three and nine months ended September 30, 2019,2020, respectively, to adjust the carrying value of our investment in shares of TA sharescommon stock to its fair value.

(2)As of September 30, 2020,2021, we owned 40 hotels6 net lease properties located in 185 states with an aggregate carrying value of $3,690 classified as held for sale with an aggregate net carrying value of $184,467 before adjusting for estimated costs of sale of $5,230 and 6 net lease properties with 121,451 square feet with a carrying value of $6,735 before adjusting for estimated costs of sale of $400. We recorded a $10,248 loss on asset impairment during the three months ended September 30, 2020 to reduce the carrying value of 1 hotel and 2 net lease properties to their estimated fair value less costs to sell.sale. These properties are recorded at their estimated fair value less costs to sell based on information derived from offers received from prospective buyers of the sales prices under purchase agreements with third-partiesproperties (Level 2 inputs as defined in the fair value hierarchy under GAAP). We recorded a $2,110 loss on asset impairment during the nine months ended September 30, 2021 to reduce the carrying value of 5 of these properties to their estimated fair value less costs to sell. As of December 31, 2020, we owned 5 hotels in 4 states with an aggregate carrying value of $10,699 and 6 net lease properties located in 6 states with an aggregate carrying value of $2,844 classified as held for sale.

In addition to the investment securitiesassets included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility term loan,and senior notes and security deposits.notes. At September 30, 20202021 and December 31, 2019,2020, 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 floating interest rates, except as follows:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
Senior Unsecured Notes, due 2021 at 4.25%$49,932 $49,934 $398,379 $406,838 
Senior Unsecured Notes, due 2022 at 5.00%Senior Unsecured Notes, due 2022 at 5.00%497,729 497,950 496,821 526,500 Senior Unsecured Notes, due 2022 at 5.00%$498,941 $504,458 $498,032 $510,285 
Senior Unsecured Notes, due 2023 at 4.50%Senior Unsecured Notes, due 2023 at 4.50%499,555 488,783 499,432 520,478 Senior Unsecured Notes, due 2023 at 4.50%499,720 511,435 499,596 505,280 
Senior Unsecured Notes, due 2024 at 4.65%Senior Unsecured Notes, due 2024 at 4.65%348,599 327,483 348,295 364,277 Senior Unsecured Notes, due 2024 at 4.65%349,004 355,541 348,700 347,893 
Senior Unsecured Notes, due 2024 at 4.35%Senior Unsecured Notes, due 2024 at 4.35%819,178 747,153 818,075 848,847 Senior Unsecured Notes, due 2024 at 4.35%820,649 840,362 819,546 819,328 
Senior Unsecured Notes, due 2025 at 4.50%Senior Unsecured Notes, due 2025 at 4.50%346,946 318,150 346,431 361,783 Senior Unsecured Notes, due 2025 at 4.50%347,634 350,656 347,118 346,462 
Senior Unsecured Notes, due 2025 at 7.50%Senior Unsecured Notes, due 2025 at 7.50%788,222 852,172 Senior Unsecured Notes, due 2025 at 7.50%790,757 900,748 789,006 926,404 
Senior Unsecured Notes, due 2026 at 5.25%Senior Unsecured Notes, due 2026 at 5.25%343,930 322,838 343,083 369,185 Senior Unsecured Notes, due 2026 at 5.25%345,059 353,668 344,212 354,996 
Senior Unsecured Notes, due 2026 at 4.75%Senior Unsecured Notes, due 2026 at 4.75%446,363 401,198 445,905 464,315 Senior Unsecured Notes, due 2026 at 4.75%446,973 449,460 446,515 448,506 
Senior Unsecured Notes, due 2027 at 4.95%Senior Unsecured Notes, due 2027 at 4.95%395,216 355,202 394,649 414,012 Senior Unsecured Notes, due 2027 at 4.95%395,971 399,028 395,405 404,328 
Senior Unsecured Notes, due 2027 at 5.50%Senior Unsecured Notes, due 2027 at 5.50%443,109 479,815 442,370 491,918 
Senior Unsecured Notes, due 2028 at 3.95%Senior Unsecured Notes, due 2028 at 3.95%391,621 334,704 390,759 393,940 Senior Unsecured Notes, due 2028 at 3.95%392,770 379,540 391,908 388,146 
Senior Unsecured Notes, due 2029 at 4.95%Senior Unsecured Notes, due 2029 at 4.95%417,901 365,789 417,307 434,248 Senior Unsecured Notes, due 2029 at 4.95%418,697 417,163 418,102 430,064 
Senior Unsecured Notes, due 2030 at 4.375%Senior Unsecured Notes, due 2030 at 4.375%389,372 333,210 388,522 394,788 Senior Unsecured Notes, due 2030 at 4.375%390,503 382,550 389,656 388,292 
Total financial liabilitiesTotal financial liabilities$5,734,564 $5,394,566 $5,287,658 $5,499,211 Total financial liabilities$6,139,787 $6,324,424 $6,130,166 $6,361,902 
(1)Carrying value includes unamortized discounts and premiums and issuance costs.
At September 30, 20202021 and December 31, 2019,2020, 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).
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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 20192020 Annual Report.
Overview (dollar amounts in thousands, except share amounts and per-room hotel data)
We are a REIT organized under the laws of the State of Maryland. As of September 30, 2020,2021, we owned 1,1331,098 properties in 47 states, the District of Columbia, Canada and Puerto Rico.
Impact of COVID-19
InBusiness Environment and Outlook. Since March 2020, the World Health Organization declaredlodging industry and other industries in which our managers and tenants operate have been adversely impacted by the outbreak of COVID-19 as aglobal pandemic, along with federal, state and in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughout the United States and the world. Various governmental and market responses attemptinglocal government mandates intended to contain and mitigate the spread of COVID-19 and market reactions to the virus that causespandemic. The effects of COVID-19 have negatively impacted, and continue to negativelyhave a significant negative impact on our results of operations, financial position and cash flow. Although lodging demand improved during the global economy, includingthree and nine months ended September 30, 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical pre-pandemic levels. We currently expect that the recovery with respect to business transient and group business will be gradual and likely inconsistent. We also currently expect the recovery of the U.S. economy. Ashospitality industry to be a result, most market observers believemulti-year process and to remain uneven. In addition, consumer confidence and lodging demand will continue to be affected by unemployment, perceptions of the global economysafety of returning to normal activities, the continued use of video conferencing technologies rather than in person meetings and broader macroeconomic trends. We are closely monitoring the U.S. economy areimpacts of the COVID-19 pandemic on all aspects of our business, specifically, but not limited to, labor availability and cost pressures from supply chain disruptions and commodity price inflation in a recession. Statesour hotel portfolio. For more information and municipalities acrossrisks relating to the United States have generally allowed most businesses to reopenCOVID-19 pandemic on us and have generally eased certain restrictions they had previously implementedour business, see Part I, Item 1, “Business—Impact of COVID-19” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report. Our manager, RMR LLC, has taken various actions in response to the COVID-19 pandemic often in stages that are phased in over time, although some statesto address its operating and municipalities have imposed or reimposed certain restrictions in response to increases in COVID-19 infections experienced since then. Recently, economic data have indicated that the U.S. economy has increasingly improved since the lowest periods experienced in March and April 2020, although the U.S. gross domestic product remains below pre-pandemic levels. It is unclear whether the increases in the number of COVID-19 infection outbreaks will continue and/or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our operators or our business.
Our business is focused on lodging and service retail properties, which have been some of the industries most severely and negatively impacted by the effects of the pandemic. These conditions have materially and adversely impacted our business, operations, financial results and liquidity. In particular, a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a decline in the lodging industry, including, but not limited to, (i) restrictions on travel and public gatherings imposed by governmental entities and employers, (ii) the closure of hotels, restaurants and other venues, and (iii) the postponement or cancellation of industry conventions and conferences, and other demand drivers of our hotels, (iv) the closure of amusement parks, museums and other tourist attractions, (v) the closure of colleges and universities, and (vi) negative public perceptions of travel and public gatherings in light of the perceived risks associated with the COVID-19 pandemic. The reduced economic activity resulting from these factors has severely and negatively impacted our operations. Our hotels have experienced a significant decline in occupancy and revenues.
We suspended operations at 19 hotels as a result of the COVID-19 pandemic and related declines in business activity (17 full-service hotels and two extended stay hotels) during March and April 2020. As of November 6, 2020, 17 of these 19 hotels have resumed operations. Hotel occupancies reached all-time lows during the second quarter of 2020 as a result of weak demand resulting from various forms of stay-at-home restrictions being enforced throughout the United States due to the COVID-19 pandemic. Hotel performance has gradually improved since the lows seen in April 2020 as travel demand slowly recovered. Occupancy at our 329 hotels was 43.6% for the third quarter of 2020 (40.3% in July 2020, 43.5% in August 2020 and 45.8% in September 2020). For the 28 days ended October 31, 2020, occupancy at our hotels was 46.6%.
We continue to work with our operators to mitigate the impact on our hotel operations as a result of general economic and industry conditions relating to the COVID-19 pandemic, including efforts to reduce operating expenses such as, but not limited to, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, service contract reductions and eliminations, food service and exercise facilities closures, and reduction and elimination of certain marketing expenditures. We have also agreed to suspend contributions to our FF&E reserves under certain of our agreements. These efforts to reduce operating expenses have been partially offset by additional expenses we and our hotel managers have incurred to change the operations and procedures at our hotels in response to the COVID-19 pandemic. Cleaning protocols, safety standards and other operational considerations have been modified that have resulted in, and which we expect will continue to result in, increased operating expenses and may require additional capital expenditures at our hotels.
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As a result of the depressed activity at our hotels and expected losses, several of our operators have requested working capital advances from us to pay operating expenses for our hotels. During the nine months ended September 30, 2020, we advanced an aggregate of $91,203 of working capital to certain of our hotel operators to cover projected operating losses. We advanced $37,000 to IHG, $30,000 to Marriott, $14,187 to Sonesta, $6,316 to Wyndham and $3,700 to Hyatt. Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain management fees pursuant to the terms of the respective agreements. We may receive additional requests for working capital advances if lodging activity continues to be depressed.
We sent notices of default and termination to IHG for failure to pay minimum returns and rents due to us of $36,776 for the third quarter of 2020 and that we will transfer the branding and management of 102 of the 103 hotels to Sonesta on December 1, 2020.
We sent notices to Marriott terminating our agreement for its failure to cover the $23,952 cumulative shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us for the nine months ended September 30, 2020. The effective date of the termination is January 31, 2021 and we currently plan to transfer the branding and management of 98 of these hotels to Sonesta. Pursuant to our existing agreement with Marriott, we are proceeding with the sale of 24 of the 122 Marriott branded hotels.
For information regarding our agreements with IHG and Marriott and these terminations, see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our largest tenant, TA, is current on its rent obligations to us as of November 6, 2020. The travel centers operated by TA primarily provide goods and services to the trucking industry, and demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S. economy. When the U.S. economy declines, demand for goods moved by trucks declines, and in turn demand for the products and services provided at our travel centers typically declines. Although TA’s has been recognized as providing services to essential businesses by various governmental authorities, and as a result, all of our travel centers operated by TA are open and operating, TA has also experienced negative impacts from the COVID-19 pandemic, including closing most of its full service restaurants (some of which TA has reopened), and implementing social distancing and other measures at its travel center stores. As a result, TA has experienced declines in its business activity. TA had begun reopening some of its restaurants in May 2020 as certain states allowed restaurants to reopen. However, as a result of the recent increase in COVID-19 infections in several states, TA is closing or re-closing certain of its restaurants.
us. In addition, some of our other net lease retail tenants have experienced closures and substantial declines in their businesses as a result of the COVID-19 pandemic. Some of these tenants have sought rent relief from us and we expect these closures, declines and requests to continue in the future. During the three months ended September 30, 2020, we collected 87.2% of the rents due to us for those months from our other net lease tenants. During October 2020, we collected 87.4% of the rents due to us for the month from our other net lease tenants. We have entered into rent deferral agreements for an aggregate of $13,437 of rent with 51 net lease retail tenants with leases requiring an aggregate of $53,413 of annual minimum rents. Generally these rent deferrals are for one to four months of rent and were payable by the tenants over a 12 to 24 month period beginning in September 2020. If the economic downturn continues for a prolonged period, our operators and tenants and their businesses may become increasingly negatively impacted, which may result in our operators and tenants seeking additional assistance from us regarding their obligations owed to us, their being unable or unwilling to pay us returns or rents, their ceasing to pay us returns or rents and their ceasing to continue as going concerns. For information regarding our net lease tenants and our assessment of collectability of outstanding rent amounts, see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including:
our operators and tenants and their ability to withstand the current economic conditions and continue to pay us returns and rents;
our operations, liquidity and capital needs and resources;
conducting financial modeling and sensitivity analyses;
actively communicating with our operators and tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and
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monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our operators and tenants to enable us and them to operate through the current economic conditions and enhance our operators’ and tenants’ ability to pay us returns and rents.
Despite the circumstances outlined above, we believe that our current financial resources and our expectations as to the future performance of the lodging industry and the industries in which our net lease retail tenants operate will enable us to withstand the COVID-19 pandemic and its aftermath. As of November 6, 2020, we have:
$524,355 of availability under our revolving credit facility and we have received waivers of compliance with the existing financial covenants under our credit agreement to ensure we have full access to undrawn amounts under such credit facility, subject to minimum liquidity requirements,
reduced our quarterly cash distributions on our common shares to $0.01 per share; a savings of $87,220 per quarter compared to prior distribution levels,
raised $788,222 of net proceeds from the issuance of our 7.5% senior notes due 2025,
repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021,
raised $72,821 in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $218,800,
no debt maturities during the remainder of 2020 and the next debt maturity being $50,000 of our senior notes due in February 2021,
repaid our $400,000 term loan on November 5, 2020, and
prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations.
We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.
There are extensive uncertainties surrounding the COVID-19 pandemic. These uncertainties include among others:
the duration and severity of the negative economic impact;
the strength and sustainability of any economic recovery;
the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and
the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.
As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our operations and our operators and other stakeholders’ businesses, operations, financial results and financial position.business. For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.
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Acquisitions and Dispositions
On September 20, 2019, we acquired 767 properties with 12.4 million rentable square feet for an aggregate transaction value of $2,482,382, or the SMTA Transaction. The portfolio consisted of 767 service-oriented retail properties net leased to tenants in 23 distinct industries and 163 brands including quick service and casual dining restaurants, movie theaters, health and fitness, automotive parts and services and other service-oriented and necessity-based industries across 45 states. During the three months ended December 31, 2019, we sold 130 net lease properties that we acquired in the SMTA Transaction in 28 states with 2,773,241 square feet and annual minimum rent of $43,180 for $513,012. We sold 15 net lease properties with an aggregate of 1,148,411 rentable square feet and annual minimum rent of $6,135 for aggregate proceeds of $69,835, excluding closing costs, in ten separate transactions during the nine months ended September 30, 2020.
We have entered agreements to sell 24 Marriott branded hotels with 2,989 rooms in 10 states with a net carrying value of $140,798 for an aggregate sales price of $153,000.  We have entered an agreement to sell 15 Wyndham branded hotels with 1,642 rooms with a net carrying value of $40,519 for an aggregate sales price of $65,000.  We expect these sales to be completed in the fourth quarter of 2020. We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness. The amount of minimum returns due from Marriott will be reduced by the amount allocated to the Marriott hotels, which was $31,359 as of September 30, 2020. The sales of these hotels are subject to various contingencies; accordingly, we cannot provide any assurance that we will sell any of these 39 hotels.
On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta modified our then existing business arrangements. See Note 6 for furthermore information regarding these actions and monitoring activities, see our Sonesta agreement in Part I, Item 1 of this Quarterly Report on Form 10-Q.2020 Annual Report.
Management agreements and leases. At September 30, 2020,2021, we owned 329304 hotels operated under six agreements. We leased 328 of these hotels to our wholly owned TRSs that are managed by hotel operating companies, and the one remaining hotel is leased to a hotel operating company.companies. We own 804794 service-oriented properties with 183175 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. Our condensed consolidated statements of comprehensive income (loss) include hotel operating revenues and hotel operating expenses from our managed hotels and rental income and other operating expenses from our leased hotelhotels and net lease properties.
ManyIn February and March 2021, we transitioned the branding and management of 88 hotels to Sonesta from Marriott, in June 2021, we transitioned the branding and management of five hotels to Sonesta from Hyatt and on November 1, 2021, we transitioned the branding and management of one hotel to Sonesta from Radisson. For further information regarding these transitions, see Note 5 to our operating agreementscondensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On June 7, 2021, we and net leases contain security features, such as guarantees and security deposits, which are intendedHyatt amended our Hyatt agreement. Under our amended Hyatt agreement, Hyatt will continue to protect minimum returns and rents due to us in accordance with our agreements regardlessmanage 17 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 decline22 hotels we own for a prolonged period. Also, certain10-year term effective April 1, 2021. For further information regarding our amended Hyatt agreement, see Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On November 1, 2021, we and Radisson amended our Radisson agreement. Under our amended Radisson agreement, Radisson will continue to manage eight of the guarantees thatnine hotels we hold are limitedown for a 10-year term effective August 1, 2021. For further information regarding our amended Radisson agreement, see Note 5 to our condensed consolidated financial statements in amount and duration and do not provide for paymentPart I, Item 1 of the entire amountthis Quarterly Report on Form 10-Q.
Hotel Portfolio. As of the applicable minimum returns. DuringSeptember 30, 2021, we owned 304 hotels. In the three and nine months ended September 30, 2020, we utilized $8,992 and $109,162, respectively, of2021, the U.S. hotel operator security deposits, and during the three and nine months ended September 30, 2020, we utilized $13,385 and $68,268, respectively, of the guarantees provided by certain of our hotel operators under their respective operating agreements. As of September 30, 2020, $22,603 of guarantees ($19,487 under the Radisson agreement and $3,116 under the Hyatt agreement) were available to cover shortfallsindustry generally realized increases in hotel cash flows available to pay the minimum returns due to us. We have fully utilized the security deposits we held under our IHG agreement and Marriott agreement and exhausted the $30,000 limited guarantee under our Marriott agreement. Based on our current estimates, we project we will exhaust the guaranty from Hyatt in the fourth quarter of 2020. If Radissonaverage daily rate, or Hyatt are unwilling or unable to fund our minimum returns, we may have the right to terminate our agreements with those operators and change the operator of those hotels.
Hotel Portfolio
Comparable hotels data. We presentADR, revenue per available room, or RevPAR, average daily rate, orand occupancy compared to the corresponding 2020 periods. During the quarter ended September 30, 2021, our hotel portfolio produced aggregate quarter over quarter increases in ADR, RevPAR and occupancy. The following table provides a summary for all our hotels of these revenue metrics for the periods presented which we believe are key indicators of performance at our hotels.
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Three Months Ended September 30,Nine Months Ended September 30,
20212020Change20212020Change
All Hotels
No. of hotels304 329 (25)304 329 (25)
No. of rooms or suites48,439 51,404 (2,965)48,439 51,404 (2,965)
Occupancy60.1 %43.6 %16.5  pts52.2 %42.7 %9.5  pts
ADR$114.55 $89.88 27.4 %$102.84 $103.30 (0.4)%
RevPAR$68.84 $39.19 75.7 %$53.68 $44.11 21.7 %
Comparable hotels data. We present RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. We generally define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared. For the three months ended September 30, 20202021 and 2019, we excluded 15 hotels from2020, our comparable results. Three of theseresults exclude 12 hotels were not owned for the entire period and 12that had suspended operations as a result of the COVID-19 pandemic during part of the periods presented. For the nine months ended September 30, 2021 and 2020, and 2019, we excluded 25SVC’s comparable results exclude 22 hotels from our comparable results. Three of these hotels were not owned for the entire period, four were closed for major renovations and 18that had suspended operations as a result of the COVID-19 pandemic during part of the periods presented.
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Hotel operations. During the three and nine months ended September 30, 2020, the U.S. hotel industry generally realized decreases in ADR and RevPAR and declines in occupancy compared to the same periods in 2019. During the three and nine months ended September 30, 2020, our 314 and 304 comparable hotels that we owned continuouslythese revenue metrics for the periods respectively, produced aggregate year over year decreases in ADR, occupancy and RevPAR. presented.
Three Months Ended September 30,Nine Months Ended September 30,
20212020Change20212020Change
Comparable Hotels
No. of hotels292 292 — 282 282 — 
No. of rooms or suites45,020 45,020 — 42,292 42,292 — 
Occupancy60.9 %45.5 %15.4  pts53.5 %44.9 %8.6  pts
ADR$111.18 $90.87 22.4 %$95.50 $100.17 (4.7)%
RevPAR$67.71 $41.35 63.7 %$51.09 $44.98 13.6 %
We believe these results are primarily due to the marketimproved lodging fundamentals in the current year periods and disruption resulting fromand displacement at certain of our hotels as a result of the COVID-19 pandemic.
Forpandemic that negatively affected results in the three months ended September 30, 2020 compared to the same period in 2019 for our 314 comparable hotels: ADR decreased 26.7% to $89.50; occupancy decreased 32 percentage points to 46.0%; and RevPAR decreased 56.6% to $41.17.
For the three months ended September 30, 2020 compared to the same period in 2019 for all our 329 hotels: ADR decreased 30.0% to $89.88; occupancy decreased 33 percentage points to 43.6%; and RevPAR decreased 60.3% to $39.19.
For the nine months ended September 30, 2020 compared to the same period in 2019 for our 304 comparable hotels: ADR decreased 18.4% to $98.15; occupancy decreased 29 percentage points to 45.2%; and RevPAR decreased 50.2% to $44.36.
For the nine months ended September 30, 2020 compared to the same period in 2019 for all our 329 hotels: ADR decreased 20.7% to 103.3; occupancy decreased 31 percentage points to 42.7%; and RevPAR decreased 54.2% to $44.11.prior year periods.
Net Lease Portfolio. As of September 30, 2020,2021, we owned 804794 service-focused retail net lease service-oriented retail properties with 13,682,47813,574,656 square feet leased to 175 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rent of $369,803, which represented approximately 38.5% of our total annual minimum returns and rents.$370,945. Our net lease portfolio was 98.0%98.2% occupied as of September 30, 2020 by 183 tenants2021 with a weighted (by annual minimum rent) lease term of 11.010.3 years, operating under 129134 brands in 2221 distinct industries. TA is our largest tenant. As of September 30, 2020,2021, we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of $246,110 which represents 25.6% of our consolidated annual minimum rents and returns.$246,111.
Additional details of our hotel operating agreements and our net lease agreements are set forth in Notes 65 and 109 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the tabletables and notes thereto on pages 49 through 52 below.
Acquisitions and Dispositions. In March 2021, we acquired a land parcel adjacent to a property we own in Nashville, TN for a purchase price of $7,709, including acquisition related costs.
During the nine months ended September 30, 2021, we sold six hotels with 576 rooms for $32,016, excluding closing costs, and five net lease properties with 44,680 square feet for $2,705, excluding closing costs. In October 2021, we sold one net lease property with 7,070 rentable square feet for a sales price of $915, excluding closing costs.
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Results of Operations (dollar amounts in thousands, except share amounts)
Three Months Ended September 30, 20202021 compared to the Three Months Ended September 30, 20192020
For the Three Months Ended September 30,For the Three Months Ended September 30,
  Increase% Increase  Increase% Increase
20202019(Decrease)(Decrease)20212020(Decrease)(Decrease)
Revenues:Revenues:    Revenues:    
Hotel operating revenuesHotel operating revenues$199,719 $525,290 $(325,571)(62.0)%Hotel operating revenues$338,375 $199,719 $138,656 69.4 %
Rental income - hotelsRental income - hotels674 5,565 (4,891)(87.9)%Rental income - hotels— 674 (674)(100.0)%
Rental income - net lease portfolio96,102 68,054 28,048 41.2 %
Total rental income96,776 73,619 23,157 31.5 %
FF&E reserve income— 863 (863)(100.0)%
Rental income - net leaseRental income - net lease98,724 96,102 2,622 2.7 %
Total revenuesTotal revenues437,099 296,495 140,604 47.4 %
Expenses:Expenses:    Expenses:    
Hotel operating expensesHotel operating expenses174,801 377,895 (203,094)(53.7)%Hotel operating expenses285,233 174,801 110,432 63.2 %
Other operating expensesOther operating expenses3,705 1,707 1,998 117.0 %Other operating expenses4,437 3,705 732 19.8 %
Depreciation and amortization - hotelsDepreciation and amortization - hotels64,517 66,929 (2,412)(3.6)%Depreciation and amortization - hotels66,065 64,517 1,548 2.4 %
Depreciation and amortization - net lease portfolio57,687 36,231 21,456 59.2 %
Depreciation and amortization - net leaseDepreciation and amortization - net lease58,098 57,687 411 0.7 %
Total depreciation and amortizationTotal depreciation and amortization122,204 103,160 19,044 18.5 %Total depreciation and amortization124,163 122,204 1,959 1.6 %
General and administrativeGeneral and administrative12,295 12,464 (169)(1.4)%General and administrative14,231 12,295 1,936 15.7 %
Transaction related costsTransaction related costs3,149 — 3,149 n/m
Loss on asset impairmentLoss on asset impairment10,248 — 10,248 n/mLoss on asset impairment— 10,248 (10,248)(100.0)%
Total expensesTotal expenses431,213 323,253 107,960 33.4 %
Other operating income:Other operating income:Other operating income:
Gain on sale of real estate109 — 109 n/m
Gain on sale of real estate, netGain on sale of real estate, net94 109 (15)(13.8)%
Unrealized gains (losses) on equity securities, net5,606 (3,950)9,556 n/m
Unrealized gain on equity securities, netUnrealized gain on equity securities, net24,348 5,606 18,742 334.3 %
Interest incomeInterest income688 (682)(99.1)%Interest income203 197 3,283.3 %
Interest expenseInterest expense(80,532)(52,375)(28,157)53.8 %Interest expense(92,458)(80,532)(11,926)14.8 %
Loss on early extinguishment of debt— (8,451)8,451 (100.0)
Income (loss) before income taxes and equity earnings of an investee(101,569)40,458 (142,027)(351.0)%
Income tax benefit (expense)296 (467)763 n/m
Loss before income taxes and equity in earnings (losses) of an investeeLoss before income taxes and equity in earnings (losses) of an investee(61,927)(101,569)39,642 (39.0)%
Income tax benefitIncome tax benefit55 296 (241)(81.4)%
Equity in earnings (losses) of an investeeEquity in earnings (losses) of an investee(1,369)83 (1,452)n/mEquity in earnings (losses) of an investee2,158 (1,369)3,527 (257.6)%
Net income (loss)$(102,642)$40,074 $(142,716)(356.1)%
Net lossNet loss$(59,714)$(102,642)$42,928 41.8 %
Weighted average shares outstanding (basic)164,435 164,321 114 0.1 %
Weighted average shares outstanding (diluted)164,435 164,348 87 0.1 %
Weighted average shares outstanding (basic and diluted)Weighted average shares outstanding (basic and diluted)164,590 164,435 155 0.1 %
Net income (loss) per common share (basic and diluted)$(0.62)$0.24 $(0.86)(358.3)%
Net loss per common share (basic and diluted)Net loss per common share (basic and diluted)$(0.36)$(0.62)$0.26 (41.9)%
References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2020,2021, compared to the three months ended September 30, 2019.2020.
Hotel operating revenues. The decreaseincrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lowerhigher occupancies principally as a resultand average rates at certain of our hotels in the 2021 period and the negative impact the COVID-19 pandemic had on our hotels in the 2020 period ($325,571)146,353), partially offset by the sale of certain hotels since July 1, 2020 ($7,697). Additional operating statistics of our hotels are included in the table on page 49.23.
Rental income - hotels. The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to a managed property during 2020 ($2,630), amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($943) and IHG’s default of the lease covering one hotel in San Juan, PR ($1,318). 2020.
Rental income - hotels for the 2019 period includes $80 of adjustments to record rent on a straight-line basis. There were no such adjustments tonet lease. The increase in rental income - hotelsnet lease is primarily the result of the reduction of reserves for uncollectible amounts in the 2021 period as compared to an increase in reserves for uncollectible amounts in the 2020 period.period ($7,743), partially offset by certain vacancies and lease restructurings ($3,610).
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Rental income - net lease portfolio. Hotel operating expenses.The increase in rental income - net lease portfoliohotel operating expenses is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($27,902). We increased rental income by $2,370 and reduced rental income by $3,126 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis.
FF&E reserve income. FF&E reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us to accumulate funds for future capital expenditures. The terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels. We do not report the amounts, if any, which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income. The decreasean increase in FF&E reserve income is the result of the suspension of FF&E reserve contributions for our one leased hotel and the conversion of one hotel from a leased hotel to a managed property in the 2020 period.
Hotel operating expenses. The decrease in hotel operating expenses is a result of a decreaseoccupancy at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic ($88,148), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($81,752)36,343), an increase in wages and benefits ($31,901), an increase in utilities and management fees ($14,957) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($27,311), a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($3,631) and a decrease in real estate taxes at certain of our hotels ($3,186)30,474), partially offset by our hotel acquisitionsthe sale of certain hotels since JanuaryJuly 1, 20192020 ($605) and the conversion of one hotel from a leased to managed property during the 2020 period ($329)3,243). Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements. When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. Hotel operating expenses were increased by $2,405 for the three months ended September 30, 2019. There were no such replenishments for the three months ended September 30, 2020. When our guarantees and security deposits are utilized to cover shortfalls of hotel cash flows from the minimum payments due to us, we reflect such utilizations in our condensed consolidated statements of comprehensive income as a decrease to hotel operating expenses. Hotel operating expenses were decreased by $30,474 and $2,404 for the utilization of our security deposits and guarantees during the three months ended September 30, 2020 and September 30, 2019, respectively.
Other operating expenses. The increase in other operating expenses is aprimarily the result of operating expenses we payhigher carrying costs at certain properties we acquired as part of the SMTA Transaction in September 2019.vacant properties.
Depreciation and amortization - hotels. The decreaseincrease in depreciation and amortization - hotels is a result of thean increase in depreciation and amortization ofexpense from capital improvements acquired with funds from our FF&E reserves or directly funded by usmade since JanuaryJuly 1, 20192020 ($2,481) and our hotel acquisitions since January 1, 2019 ($381)2,429), partially offset by the sale of certain hotels and certain of our depreciable assets becoming fully depreciated since JanuaryJuly 1, 20192020 ($5,274)881).
Depreciation and amortization - net lease portfolio.lease. The increase in depreciation and amortization - net lease portfolio is aprimarily the result of thean increase in depreciation and amortization of properties we acquired as part of the SMTA Transactionexpense from capital improvements made since July 1, 2020 ($21,917) and the depreciation and amortization of net lease improvements we purchased since January 1, 2019 ($2,664)717), partially offset by the sale of certain net lease properties since July 1, 2020 and certain of our depreciable assets becoming fully depreciated since JanuaryJuly 1, 20192020 ($3,125)306).
General and administrative. The decreaseincrease in general and administrative costs is primarily due to a decreasean increase in business management fees as a result of an increase in the 2020 periodour market capitalization ($2,152), partially offset by an increasea decrease in professional service expenses.expenses ($134) in the 2021 period.
Transaction related costs. Transaction related costs for the three months ended September 30, 2021 are primarily related to our arbitration proceedings with Marriott.
Loss on asset impairment. We recorded a $10,248 loss on asset impairment during the three months ended September 30, 2020 to reduce the carrying value of one hotel and two net lease properties to their estimated fair value.value less costs to sell.
Gain on sale of real estate.estate, net. We recorded a $94 net gain on sale of real estate during the three months ended September 30, 2021 in connection with the sale of two net lease properties and a $109 net gain on sale of real estate during the three months ended September 30, 2020 in connection with the sales of five net lease properties.
Unrealized gains (losses)gain on equity securities, net. Unrealized gains and lossesgain on equity securities, net represents the adjustment required to adjust the carrying value of our investment in shares of TA common sharesstock to its fair value as of September 30, 20202021 and September 30, 2019.2020.
Interest income. The decreaseincrease in interest income is due to lowerhigher average cash balances and lower interest rates during the 20202021 period.
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Interest expense. The increase in interest expense is due to higher average outstanding borrowings and a higher weighted average interest rate in the 20202021 period.
Loss on early extinguishment of debt. Loss on early extinguishment of debt represents costs incurred in the 2019 period resulting from the termination of a term loan commitment we arranged in connection with the SMTA Transaction.
Income tax benefit (expense).benefit. We recognized lower state taxes during the 2020 periodThe decrease in income tax benefit is primarily due to a decrease in our net state tax benefit during the amount of state and2021 period, partially offset by foreign sourced income subject to income taxes.tax expense.
Equity in earnings (losses) of an investee. Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses)and losses of Sonesta and AIC.Sonesta.
Net income (loss).loss. Our net income (loss)loss and net income (loss)loss per common share (basic and diluted) each decreased in the 20202021 period compared to the 20192020 period primarily due to the revenue and expense changes discussed above.
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Nine Months Ended September 30, 20202021 compared to the Nine Months Ended September 30, 20192020
For the Nine Months Ended September 30,For the Nine Months Ended September 30,
  Increase% Increase  Increase% Increase
20202019(Decrease)(Decrease)20212020(Decrease)(Decrease)
Revenues:Revenues:    Revenues:    
Hotel operating revenuesHotel operating revenues$700,578 $1,521,368 $(820,790)(54.0)%Hotel operating revenues$787,463 $700,578 $86,885 12.4 %
Rental income - hotelsRental income - hotels3,045 16,700 (13,655)(81.8)%Rental income - hotels700 3,246 (2,546)(78.4)%
Rental income - net lease portfolioRental income - net lease portfolio291,387 193,809 97,578 50.3 %Rental income - net lease portfolio286,042 291,387 (5,345)(1.8)%
Total rental income294,432 210,509 83,923 39.9 %
FF&E reserve income201 3,365 (3,164)(94.0)%
Total revenuesTotal revenues1,074,205 995,211 78,994 7.9 %
Expenses:Expenses:    Expenses:    
Hotel operating expensesHotel operating expenses492,906 1,076,011 (583,105)(54.2)%Hotel operating expenses723,769 492,906 230,863 46.8 %
Other operating expensesOther operating expenses11,029 4,419 6,610 149.6 %Other operating expenses11,758 11,029 729 6.6 %
Depreciation and amortization - hotelsDepreciation and amortization - hotels199,955 200,533 (578)(0.3)%Depreciation and amortization - hotels200,772 199,955 817 0.4 %
Depreciation and amortization - net lease portfolioDepreciation and amortization - net lease portfolio177,602 101,188 76,414 75.5 %Depreciation and amortization - net lease portfolio169,436 177,602 (8,166)(4.6)%
Total depreciation and amortizationTotal depreciation and amortization377,557 301,721 75,836 25.1 %Total depreciation and amortization370,208 377,557 (7,349)(1.9)%
General and administrativeGeneral and administrative37,621 36,906 715 1.9 %General and administrative40,840 37,621 3,219 8.6 %
Transaction related costsTransaction related costs28,934 — 28,934 n/m
Loss on asset impairmentLoss on asset impairment55,502 — 55,502 n/mLoss on asset impairment2,110 55,502 (53,392)96.2 %
Total expensesTotal expenses1,177,619 974,615 203,004 20.8 %
Gain (loss) on sale of real estate(9,655)159,535 (169,190)(106.1)%
Other operating income:Other operating income:
Gain (loss) on sale of real estate, netGain (loss) on sale of real estate, net10,934 (9,655)20,589 213.2 %
Gain on insurance settlementGain on insurance settlement62,386 — 62,386 n/mGain on insurance settlement— 62,386 (62,386)(100.0)%
Dividend income— 1,752 (1,752)(100.0)%
Unrealized gains (losses) on equity securities, net4,409 (43,761)48,170 (110.1)%
Unrealized gain on equity securities, netUnrealized gain on equity securities, net20,367 4,409 15,958 (361.9)%
Interest incomeInterest income283 1,774 (1,491)(84.0)%Interest income485 283 202 71.4 %
Interest expenseInterest expense(223,679)(151,742)(71,937)47.4 %Interest expense(273,227)(223,679)(49,548)(22.2)%
Loss on early extinguishment of debtLoss on early extinguishment of debt(6,970)(8,451)1,481 (17.5)%Loss on early extinguishment of debt— (6,970)6,970 100.0 %
Income before income taxes and equity earnings of an investee(152,630)275,292 (427,922)(155.4)%
Income before income taxes and equity in losses of an investeeIncome before income taxes and equity in losses of an investee(344,855)(152,630)(192,225)n/m
Income tax expenseIncome tax expense(16,706)(1,266)(15,440)1,219.6 %Income tax expense(1,009)(16,706)15,697 n/m
Equity in earnings (losses) of an investeeEquity in earnings (losses) of an investee(4,305)617 (4,922)(797.7)%Equity in earnings (losses) of an investee50 (4,305)4,355 n/m
Net income (loss)$(173,641)$274,643 $(448,284)(163.2)%
Net lossNet loss$(345,814)$(173,641)$(172,173)n/m
Weighted average shares outstanding (basic)164,397 164,294 103 0.1 %
Weighted average shares outstanding (diluted)164,397 164,332 65 n/m
Weighted average shares outstanding (basic and diluted)Weighted average shares outstanding (basic and diluted)164,532 164,397 135 0.1 %
Net income (loss) per common share (basic and diluted)$(1.06)$1.67 $(2.73)(163.5)%
Net loss per common share (basic and diluted)Net loss per common share (basic and diluted)$(2.10)$(1.06)$(1.04)n/m
References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2020,2021, compared to the nine months ended September 30, 2019.2020.
Hotel operating revenues. The decreaseincrease in hotel operating revenues is a result of decreased revenueshigher occupancies and higher average rates at certain of our
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managed hotels primarily as a result of lower occupancies resulting fromin the 2021 period and the negative impact the COVID-19 pandemic had on our hotels in the 2020 period ($834,219)108,635), partially offset by the conversionsale of one hotel from a leased to a managed propertycertain of our hotels since January 1, 2020 ($13,429)21,751). Additional operating statistics of our hotels are included in the table on page 49.23.
Rental income - hotels. The decrease in rental income - hotels is primarily a result of the conversion of one hotel from a leased to managed property during the 2019 period ($9,336), amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($3,001) and IHG’s default of the lease covering one hotel in San Juan, PR ($1,318). Rental income - hotels for the 2020 and 2019 periods includes $1,897 and $241, respectively, of adjustments to record rent on a straight-line basis.2020.
Rental income - net lease portfolio. The increasedecrease in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($96,382). We increased rental income by $1,599 and reduced rental income by $7,609 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis.
FF&E reserve income. The decrease in FF&E reserve income is the result of decreased salesthe sale of certain net lease properties since January 1, 2020 ($5,408) and the suspensionresult of FF&E reserve contributionscertain vacancies and lease restructurings ($4,996), partially offset by the net reduction of reserves for our one leased hoteluncollectible amounts in the 20202021 period and the conversion($5,019).
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Table of one hotel from a leased hotel to a managed property in the 2020 period.Contents
Hotel operating expenses. The decreaseincrease in hotel operating expenses is aprimarily the result of a decreasean increase in occupancy at certain managed hotels primarily driven by the COVID-19 pandemic ($265,896)23,038), an increase in management fees ($22,994) and a decrease in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($204,968)206,436), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs atpartially offset by the sale of certain of our managed hotels since January 1, 2020 ($119,405), a decrease in real estate taxes at certain of our hotels ($3,708)10,287) and a decrease in the amount of guarantywages and security deposit replenishments under certain of our hotel management agreementsbenefits ($3,910), partially offset by our hotel acquisitions since January 1, 2019 ($2,219), and the conversion of one hotel from a leased to managed property during the 2020 period ($12,563)10,490). Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements. When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. As a result, hotel operating expenses were increased by $8,519 for the nine months ended September 30, 2019. There were no such replenishments for the nine months ended September 30, 2020. When our guarantees and security deposits are utilized to cover shortfalls of hotel cash flows from the minimum payments due to us, we reflect such utilizations in our condensed consolidated statements of comprehensive income as a decrease to hotel operating expenses. Hotel operating expenses were decreased by $222,134 and $21,775 during the nine months ended September 30, 2020 and 2019, respectively, as a result of such utilization.
Other operating expenses. The increase in other operating expenses is aprimarily the result of operating expenses we payhigher carrying costs at certain properties we acquired as part of the SMTA Transaction in September 2019.vacant properties.
Depreciation and amortization - hotels. The decreaseincrease in depreciation and amortization - hotels is athe result of an increase in depreciation expense from capital improvements made since January 1, 2020 ($4,640), partially offset by the sale of certain hotels and certain of our depreciable assets becoming fully depreciated since January 1, 20192020 ($16,575), partially offset by depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 2019 ($14,854) and our hotel acquisitions since January 1, 2019 ($1,143)3,911).
Depreciation and amortization - net lease portfolio. The increasedecrease in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($78,254) and the depreciation and amortization of net lease improvements we purchasedthat were sold since January 1, 20192020 ($8,609), partially offset3,220) and by certain of our depreciable assets becoming fully depreciated since January 1, 20192020 ($10,449)4,946).
General and administrative. The increase in general and administrative costs is primarily due to higher business management fees as a result of an increase in professional service expenses,our market capitalization ($2,070), partially offset by lower business managementprofessional fees ($787) in the 2020 period .2021 period.
Transaction related costs. Transaction related costs for the nine months ended September 30, 2021 included $19,971 of hotel manager transition related costs related to rebranding certain hotels, $5,263 of legal costs related to the arbitration proceedings with Marriott and $3,700 of working capital we previously funded under our Hyatt agreement as a result of the amount no longer being expected to be recoverable.
Loss on asset impairment. We recorded a $2,110 loss on asset impairment during the nine months ended September 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell. We recorded a $55,502 loss on asset impairment during the nine months ended September 30, 2020 to reduce the carrying value of 18 hotels and eight net lease properties to their estimated fair value.
Gain (loss) on sale of real estate.estate, net. We recorded a $10,934 net gain on sale of real estate in the 2021 period in connection with the sales of six hotels and five net lease properties and a $9,655 net loss on sale of real estate in the 2020 period in connection with the sales of 15 net lease properties and a $159,535 gain on sale of real estate during the nine months ended September 30, 2019 in connection with our sales of 20 travel centers.2020.
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Gain on insurance settlement. WeIn the 2020 period we recorded a $62,386 gain on insurance settlement during the nine months ended September 30, 2020 as a result of insurance proceeds received for our then leased hotel in San Juan, PR related to Hurricane Maria. Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds.
Dividend income. Dividend income represents the dividends we received from our former investment in RMR Inc.
Unrealized gains (losses)gain on equity securities, net. Unrealized gains (losses)gain on equity securities, net representrepresents the adjustment required to adjust the carrying value of our former investment in RMR Inc., which we sold in July 2019, and our investment inshares of TA common shares,stock to theirits fair valuesvalue as of September 30, 20202021 and 2019.2020.
Interest income. The decreaseincrease in interest income is due to lowerhigher average cash balances and lower interest rates during the 20202021 period.
Interest expense. The increase in interest expense is due to higher average outstanding borrowings and weighted average interest rates in the 20202021 period.
Loss on early extinguishment of debt. We recorded a $6,970 lossLoss on early extinguishment of debt net of unamortized discounts and deferred financing fees, related torepresents losses incurred in the 2020 period for our repurchase of $350,000 principal amount of our $400,000 of 4.25%certain unsecured senior notes due 2021. We recorded a $8,451 loss on 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 acquisition of a net lease portfolio.notes.
Income tax expense. We recorded a $15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement in the nine months ended September 30, 2020. See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement.2020 period.
Equity in earnings (losses) of an investee. Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses) of Sonesta and AIC.Sonesta.
Net income (loss).loss. Our net income (loss)loss and net income (loss)loss per common share (basic and diluted) each decreasedincreased in the 20202021 period compared to the 20192020 period primarily due to the revenue and expense changes discussed above.
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Liquidity and Capital Resources (dollar amounts in thousands, except share amounts)
Our Managers and Tenants
As of September 30, 2020, 3292021, all 304 of our hotels (including one leased hotel) were included in six combination portfolio agreements; and all 329 hotels were managed by or leased tofive hotel operating companies.companies pursuant to six combination portfolio agreements. Our 804794 net lease properties were leased to 183175 tenants as of September 30, 2020.2021. The costs of operating and maintaining our properties are generally paid by the hotel operatorsmanagers as agents for us or by our tenants for their own account. Our hotel operatorsmanagers 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. OurAs of September 30, 2021, our hotel operators includemanagers included Sonesta (261 hotels), Hyatt (17 hotels), Radisson (nine hotels), Marriott (16 hotels) and IHG Sonesta, Wyndham, Hyatt and Radisson.(one hotel). TA is our largest net lease tenant. No other net lease tenant represents more than 1% of our total annualized minimum returns or rents.(179 travel centers).
The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and on our hotel managers’ and tenant’s businesses. Certain of our tenants’ businesses, have been materially and adversely impacted by the COVID-19 pandemic, which may reduce their ability or willingness to pay us our minimum returns and rents, increase the likelihood they will default in paying us returns and rent and reduce the value of those properties.
We continue to carefully monitor the developmentseffects of the COVID-19 pandemic and its impact on our operators and tenants and our other stakeholders.
As a result of the depressed activity at our hotels and expected losses, severalJanuary 1, 2021, Marriott managed 105 of our hotel operators requested working capital advances from us to pay operating expenses. During the nine months ended September 30, 2020, we advanced an aggregate of $91,203 of working capital to certain of our hotel operators to cover projected operating losses. We advanced $37,000 to IHG, $30,000 to Marriott, $14,187 to Sonesta, $6,316 to Wyndham and $3,700 to Hyatt. Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain fees to the manager pursuant to the terms of the respective agreements. The amounts we have advanced to date may be insufficient to cover future losses and we may receive additional requests for working capital in the future.
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Certain of our management arrangements or leases are subject to full or limited guarantees or are secured by a security deposit which we control. These guarantees may provide us with continued payments if the property level cash flows fail to equal or exceed guaranteed amounts due to us. Some of our managers and tenants, or their affiliates, may also supplement cash flows from our properties in order to make payments to us and preserve their rights to continue operating our properties even if they are not required to do so by guarantees or security deposits. Guarantee payments, security deposit applications or supplemental payments to us, if any, made under any of our management agreements or leases do not subject us to repayment obligations, but, under some of our agreements, the manager or tenant may recover these guarantee or supplemental payments and the security deposits may be replenished from subsequent cash flows from our properties after our future minimum returns and rents are paid.
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 featureshad terminated in our agreements to cover some of these shortfalls. However, several of the guarantees and all the security deposits we hold are2020 for limited amounts, are for limited durations and may be exhausted or expire. Accordingly, the effectiveness of our various security features to provide uninterrupted payments to us is not assured.
We have exhausted the security deposits held under the IHG agreement covering 103 hotels and IHG has defaulted on its payment obligations. We sent notices of default and termination to IHG forMarriott’s failure to pay minimum returns and rents due to us of $36,776 for the third quarter of 2020 and that we will transfer the branding and management of 102 of the 103 IHG hotels to Sonesta on December 1, 2020.
We have exhausted both the security deposit and the limited guaranty under the Marriott agreement. Under the Marriott agreement, once the security deposit and guaranty have been depleted, Marriott is required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination. We sent notices to Marriott terminating our agreement for its failure to cover the $23,952 cumulative shortfall between the payments we havehad received to date and 80% of the cumulative priority returns due to us forin accordance with the nine months ended September 30, 2020. The effective date of the termination is January 31, 2021 and we currently plan to transfer to Sonestaagreement. We transitioned the branding and management of the 9888 Marriott hotels to the extent not sold.
OnSonesta in February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we2021 and Sonesta restructured our existing business arrangements, as follows:
March 2021. We sold one Marriott hotel in April 2021. As of we amended and restated our then existing Sonesta agreement, and our pooling agreement with Sonesta, which combines these management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us, as further described below;
September 30, 2021we and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay hotels then, Marriott managed by Sonesta. Based on current market conditions, we have decided not pursue the sale of these 39 hotels at this time;
the annual minimum returns due for the 14 full-service hotels that Sonesta continued to manage were reduced from $99,013 to $69,013;
Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta;
we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that up to 5% of the gross revenues of each16 of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as FF&E reserves, subjecthotels. For further information regarding this sale, see the Notes to available cash flow after payment of the annual minimum returns due to us and working capital advances, if any, under our Sonesta agreement;
we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause”, casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed; and
we and Sonesta extended the initial expiration date of the then existing management agreements for our full-service hotels located in Chicago, IL and Irvine, CA that are managed by Sonesta to expire in January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta.
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Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement. Additional details of this agreement are set forth in Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We previously leased 48 vacation unitsare in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to Destinations at our full-service hotel locatedus, including Marriott’s assertion that we are required to refund $19,120 of minimum return advances made to us in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham. Effective March 1, 2020, Sonesta commenced managing those units and those units were added to our Sonesta agreement for that Chicago hotel.
Between September 18, 2020, and October 1, 2020, Sonesta assumed managementthe validity of fourthe timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels previously managed by Wyndham.encumbered with a Marriott brand. We are also seeking repayment of certain working capital advances we made to Marriott during 2020. We have entered into management agreementsan agreement with Sonesta with respectMarriott regarding the 16 hotels noted above, pursuant to these four hotels on terms substantially consistent with our other applicable management agreements with Sonesta in effect afterwhich we restructured our business arrangement with Sonesta on February 27, 2020, except that the management agreements are scheduledagreed to terminate on December 31, 2021, subject to automatic one-year extensions. The management agreements forhave these hotels have not been addedremain Marriott branded hotels until the arbitration is resolved.
On June 7, 2021, we and Hyatt amended our Hyatt agreement. Under our amended Hyatt agreement, Hyatt will continue to our pooling agreement with Sonesta.

As noted above, our management agreements with IHG for 103manage 17 of our hotels are scheduled to terminate effective November 30, 2020, and our management agreements with Marriott for 122 of our hotels are scheduled to terminate effective January 31, 2021. Management of 200 of these hotels, excluding hotels sold prior to the termination date, is expected to be transitioned to Sonesta. As we transition management of these22 hotels we expect that we will enter management agreements with Sonesta on terms similar to those for the four hotels formerly managed by Wyndham that were transitioned to Sonesta management between September 18, 2020 and October 1, 2020, as further described above.

As of September 30, 2020, 17 of our hotels were operated under a management agreement with Wyndham. In September 2020, we amended the management agreement with Wyndham so that it will continue as the manager of these Wyndham branded hotelsown for a 10-year term effective April 1, 2021. Our amended Hyatt agreement sets our annual minimum return at $12,000, and Hyatt provided us with a new $30,000 limited period.guarantee for 75% of the aggregate annual minimum returns due to us beginning in 2023. Under theour amended terms of thisHyatt agreement we will pay Wyndham a management fee of 7%5% of hotelgross room revenues subjectpayable to Hyatt will be an operating cost paid senior to our minimum return. Hyatt may also earn a 20% incentive management fee after payment of our annual minimum return and reimbursement of certain minimums. In September 2020, we rebranded threeadvances, if any. We agreed to fund approximately $50,000 of renovations that are expected to be completed by the end of 2022. We transitioned the branding and management of the remaining five hotels that Hyatt previously managed to Sonesta in June 2021.
On November 1, 2021, we and Radisson amended our Radisson agreement. Under our amended Radisson agreement, Radisson will continue to manage eight of the nine hotels we own for a 10-year term effective August 1, 2021. Our amended Radisson agreement sets our annual minimum return at $10,200 and Radisson has provided us with a new $22,000 limited guarantee for 75% of the aggregate annual minimum returns beginning in 2023. Under our amended Radisson agreement, a management fee of 5% of gross room revenues for each hotel operated under the Country Inn & Suites brand and a management fee of 3% of gross room revenues for each hotel managed under the Radisson Hotel brand payable to Radisson will be an operating cost paid senior to our minimum return. Radisson may also earn a 20% incentive management fee after payment of our annual minimum return and reimbursement of certain advances, if any. We also agreed to fund approximately $12,000 of renovations that are expected to be completed by Wyndham to Sonesta. On October 1, 2020, we rebranded one additional Wyndhamthe end of 2022. We transitioned the branding and management of the ninth hotel that Radisson previously managed by Wyndham to Sonesta. We expect to sell 15 Wyndham branded hotels in the fourth quarterSonesta on November 1, 2021.
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TA, our largest tenant, is current on all its rent obligations to us as of November 5, 2020. During the three months ended September 30, 2020,2021, we collected 87.2%entered into a rent deferral agreement for $2,852 of rents from our otherrent with one net lease tenants. In October 2020, we collected 87.4%tenant. We had $10,827 of deferred rents dueoutstanding related to us from15 tenants who represent approximately 2.9% of our otherannualized rental income of our net lease tenants. Weretail portfolio as of September 30, 2021. Generally, the rent deferrals we have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53,413 of annual minimum rents. Generally these rent deferrals are for one to four months of rent and will be payable by the tenants over a 12 to 24 month period beginning in September 2020. As of November 5, 2020, we have deferred an aggregate of $13,437 of rent.period. We may receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the currentCOVID-19 pandemic and its impact on economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants. Further, we do not know whether any of our tenants have qualified for, or will receive assistance from, the Coronavirus Aid, Relief and Economic Security Act or other government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us. As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic downturn,conditions, we are unable to determine what the ultimate impact will be on our tenants and their ability and willingness to pay us rent and any additional impact this pandemic will have on our future cash flows.

During the three months ended September 30, 2021 and 2020, we reduced our reserves for uncollectible amounts and increased rental income by $5,373 for the three months ended September 30, 2021 based on our assessment of collectibility and cash received from certain tenants. We define coveragerecorded reserves for eachuncollectible amounts against rental income of $2,369 for the three months ended September 30, 2020, and $588 and $7,689 for the nine months ended September 30, 2021 and 2020, respectively. We had reserves for uncollectible rents of $16,434 and $18,230 as of September 30, 2021 and December 31, 2020, respectively, included in other assets in our hotel operating agreements as total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to the hotel minimum returns or rents due to us divided by the hotel minimum returns or rents due to us. More detail regarding coverage, guarantees and other features of our hotel operating agreements is presented in the tables and related notes on pages 50 through 51.
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condensed consolidated balance sheets.
We define net lease coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period reported based on the most recent operating information, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us. Tenants that do not report operating information are excluded from the coverage calculations. Coverage amounts include data for certain properties for periods prior to when we acquired them. In instances where we do not have financial information for our portion of the most recent quartermeasurement period from our tenants, we have calculated an implied EBITDAR for the third quarter of 2020period using industry benchmark data to more accurately reflect the impact of COVID-19 on our tenants’ operations. We believe using only financial information from the earlier periods could be misleading as it would not reflect the negative impact those tenants experienced as a result of the COVID-19 pandemic.current operating trends. As a result, we believe using this industry benchmark data provides a more accuratereasonable estimated representation of recent operating results and coverage for those tenants. As of September 30, 2020, ourOur net lease properties generated coverage of 2.12x.2.37x and 2.12x as of September 30, 2021 and 2020, respectively.
Our Operating Liquidity and Capital Resources
Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are minimum returns and rents from our hotels and net lease portfolio and borrowings under our revolving credit facility. We receive minimum returns and rents from our managers and tenants monthly. We may receive additional returns, percentage rents and our share of the operating profits of our managed hotels after payment of management fees and other deductions, if any, either monthly or quarterly, and these amounts are usually subject to annual reconciliations. We believe that these sources of funds will bewe have sufficient liquidity to meetwithstand the current decline in operating cash flow, fund our operating and capital expenses,expenditures, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter. Due to the economic uncertainty caused by the COVID-19 pandemic, we reduced our quarterly distribution to our shareholders beginning in the second quarter of 2020 to $0.01 per share and we expect our quarterly distribution to continue at that rate for the foreseeable future, subject to REIT tax requirements. Further,However, our managers and tenants may become further or increasingly unable or unwilling to pay minimum returns and rents to us when due as a result of current economic conditions and, as a result, our revenue, cash flowsflow, and net income could decline. Under the challenging operating environment posed by the COVID-19 pandemic and the slowdown in U.S. economic activity and lodging demand beginning in March 2020, we have taken steps to preserve liquidity by drawing down the remaining capacity on our $1,000,000 revolving credit facility, maintaining our quarterly distribution to our shareholders at $0.01 per share, which we expect to continue at that rate for the foreseeable future, subject to applicable REIT tax requirements, by selectively making capital expenditures, and by continuing to work with our hotel operators to reduce hotel operating expenses. We intend to use available cash in the near term predominantly to fund any operating losses at our hotels, to pay corporate expenses, including debt service, fund capital expenditures, and to pay distributions to our shareholders. As of September 30, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we satisfy that covenant. We may access equity markets or seek other sources of capital if favorable conditions exist for us in order to enhance our liquidity, reduce debt and to fund cash needs.
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The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):
Nine Months Ended September 30,Nine Months Ended September 30,
2020201920212020
Cash and cash equivalents and restricted cash at the beginning of the periodCash and cash equivalents and restricted cash at the beginning of the period$81,259 $76,003 Cash and cash equivalents and restricted cash at the beginning of the period$91,456 81,259 
Net cash provided by (used in):Net cash provided by (used in):Net cash provided by (used in):
Operating activitiesOperating activities65,524 432,530 Operating activities1,002 65,524 
Investing activitiesInvesting activities(99,520)(2,457,485)Investing activities(87,352)(99,520)
Financing activitiesFinancing activities38,714 2,019,461 Financing activities909,083 38,714 
Cash and cash equivalents and restricted cash at the end of the periodCash and cash equivalents and restricted cash at the end of the period$85,977 $70,509 Cash and cash equivalents and restricted cash at the end of the period$914,189 $85,977 
The decrease inchange from cash flows provided by operating activities forin the nine months ended September 30, 2020 as comparedperiod to cash flows used in operating activities in the prior year2021 period is primarily due to an increase in security deposit utilization in the 2020 period, lower returns earned from our hotel portfolio and higher interest expense in the 20202021 period. The decrease in cash flows used in investing activities in the 20202021 period is primarily due to a decrease in hotel managers’ purchases with restricted cash and a decrease in real estate acquisitiondispositions in the 2021 period, partially offset by an investment in Sonesta we made in the 2021 period and disposition activity inour receipt of a hotel manager’s deposit of insurance proceeds into restricted cash during the 2020 period. The decreaseincrease in cash provided by financing activities for the nine months ended September 30, 20202021 period as compared to the prior year period is primarily due to a decrease in proceeds fromdraw down of the issuance of senior unsecured notes, offset by greater net payments underremaining capacity on our $1,000,000 revolving credit facility, our repurchase of $350,000 aggregate principal amount ofa decrease in net senior unsecured notes issuances and lower common share distributions compared to the 20192020 period.
We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 304 hotels to our wholly owned TRSs that are managed by hotel operating companies. As a REIT, we do not expect to pay federal income taxes on the majority of our income; however, the income realized by our TRSs in excess of the rent they pay to us is subject to U.S. federal income tax at corporate income tax rates. In addition, the income we receive from our hotels in Canada and Puerto Rico is subject to taxes in those jurisdictions and we are subject to taxes in certain states where we have properties despite our qualification for taxation as a REIT.
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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. We own all the FF&E escrows for our hotels. During the nine months ended September 30, 2020,2021, our hotel managers and tenants deposited $52,541$2,861 to these accounts and spent $127,837$23,692 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of September 30, 2020,2021, there was $38,130$1,657 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash. As a result of the COVID-19 pandemic and the adverse impact on the lodging industry and our properties, we and certain of our hotel operators have agreed to temporarily suspend the required contribution to our FF&E reserves under certain of our agreements through as late as December 31, 2020 as further defined below. For more information, see Note 6 to our condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.agreements. As a result, less cash will be available to us to fund future capital improvements and we may be required to provide additional fundings that may have otherwise been available in escrowed FF&E reserves. Such fundings are unlikely to materially increase in the near term above what we currently expect, as reduced occupancies are resulting in less usage and less wear and tear of our properties.
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, 2020,2021, we funded $103,974$72,432 for capital improvements in excess of FF&E reserve fundingsreserves available from hotel operations to our hotels as follows:
During the nine months ended September 30, 2020, we funded $50,415 for capital improvements to certain hotels under the Marriott agreement using cash on hand and borrowings under our revolving credit facility. Under the Marriott agreement, we have previously agreed to fund capital improvements of approximately $400,000 at certain hotels over a four-year period. We and Marriott have agreed to defer certain capital improvement projects previously scheduled for 2020 based on current market conditions. Also, we and Marriott agreed to suspend contributions to the FF&E reserve under the Marriott agreement through the end of 2020 effective March 1, 2020 as a result of current market conditions. We currently expect to fund $20,000 for capital improvements under this agreement during the last three months of 2020 using cash on hand or borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase.
We funded $3,900 for capital improvements to hotels under the IHG agreement during the nine months ended September 30, 2020. We currently do not expect to fund any capital improvements during the last three months of 2020. Effective March 1, 2020, we and IHG agreed to suspend contributions to the FF&E reserve under the IHG agreement for the remainder of 2020 as a result of current market conditions.
Under our Sonesta agreement, FF&E deposits are required only if there are excess cash flows after our payment of minimum returns and reimbursement of owner or manager advances, if any. During the nine months ended September 30, 2020, we funded $48,119 for capital improvements to certain hotels included in our Sonesta agreement using cash on hand and borrowings under our revolving credit facility.hotels. We currently expect to fund $30,000 offor capital improvements including costs related to rebrandingcertain hotels during the last three months of 2020 under this agreement2021 using cash on hand or borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase.
We did not fund any capital improvements under our Hyatt agreement during the nine months ended September 30, 2020. We currently do not expect to fund any capital improvements under this agreement during the last three months of 2020.
We did not fund any capital improvements under our Radisson agreement during the nine months ended September 30, 2020. We currently do not expect to fund any capital improvements under this agreement during the last three months of 2020. Also, effective April 1, 2020, we and Radisson agreed to suspend contributions to the FF&E reserve under our Radisson agreement through the remainder of 2020 as a result of market conditions.
No FF&E escrow deposits are required under our Wyndham agreement. We are required to reimburse Wyndham for capital improvements to hotels in our Wyndham agreement. During the nine months ended September 30, 2020, we reimbursed $1,540 of capital improvements to certain hotels included in our Wyndham agreement using cash on hand.
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Our net lease portfolio leases do not require FF&E escrow deposits. However, tenants under these leases are required to maintain the leased properties, including structural and non-structural components. Tenants under certain of our net lease portfolio leases, including TA, may request that we purchase qualifying capital improvements to the leased facilities in return for minimum rent increases or we may agree to provide allowances for tenant improvements upon execution of new leases or when renewing our existing leases. We funded $4,418$786 of capital improvements to properties under these lease provisions during the nine months ended September 30, 2020.2021. Tenants are not obligated to request and we are not obligated to purchase any such improvements. As of September 30, 2020,2021, we had $4,716$4,610 of unspent leasing-related obligations related to certain net lease tenants.
In March 2021, we funded a $25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation using cash on hand.
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In March 2021, we acquired a parcel of land adjacent to a property we own in Nashville, TN for a purchase price of $7,709 using cash on hand, including acquisition related costs of $109.
During the nine months ended September 30, 2020,2021, we acquired threesold six hotels with an aggregate of 576 rooms for net proceeds of $31,214 in two separate transactions and we also sold five net lease properties with approximately 6,69644,680 square feet in two states for an aggregate purchase pricenet proceeds of $7,071, including acquisition related costs of $71 using cash on hand.
During the nine months ended September 30, 2020, we sold 15 net lease properties with approximately 1,148,411 square feet in 15 states for an aggregate sales price of $69,835, excluding closing costs.$2,705. We used the net proceeds from these sales to repay amounts outstanding under our revolving credit facility. facility and for general business purposes. In October and November 2020,2021, we sold one net lease property with 7,070 rentable square feet for a sales price of $915, excluding closing costs.
We are currently marketing for sale 68 Sonesta branded hotels (46 extended stay hotels with 5,404 rooms or suites, 19 select service hotels with 2,461 rooms or suites and three full service hotels with 895 rooms or suites) located in 27 states with an aggregate net carrying value of $578,982 as of September 30, 2021. We expect these sales to be completed by the end of the first quarter of 2022. We also entered into agreements to sell four net lease properties with 82,623an aggregate of 14,630 square feet with aand an aggregate carrying value of $4,518$1,788 for an aggregate sales price of $4,900. We have also entered into an agreement to sell one net lease property with approximately 3,000 square feet with a carrying value of $778 as of September 30, 2020 for a sale price of $800.$2,275, excluding closing costs. We currently expect the sale of the net lease propertythese sales to be completed inby the end of the fourth quarter of 2020.2021. We expect to use the net sales proceeds from any net lease properties soldthese sales for general business purposes or to repay outstanding indebtedness.
In June 2020, we issued $800,000 aggregate principal amount of our 7.50% unsecured senior notes due 2025. The aggregate net proceeds from this offering were $788,222, after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility.
In June 2020, we repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 for $355,971, excluding accrued interest, pursuant to a cash tender offer using borrowings under our revolving credit facility.
In July 2020, we participated in an underwritten public equity offering by TA pursuant to which we purchased 500,797 shares of TA common stock at the public offering price of $14 per share for $7,011 using cash on hand.
We have entered into an agreement to sell 24 Marriott branded hotels with 2,989 rooms in 10 states with an aggregate net carrying value of $140,798 for an aggregate purchase price of $153,000. We have entered agreements to sell 15 Wyndham branded hotels with 1,642 rooms with a net carrying value of $40,519 for an aggregate sales price of $65,000. We expect these sales to be completed in the fourth quarter of 2020. We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness. The amount of annual minimum returns due from Marriott will be reduced by the amount allocated to the hotels, which was $31,359 as of September 30, 2020. The sales of these hotels are subject to various contingencies; accordingly, we cannot provide any assurance that it will sell any of these 40 hotels.debt.
During the nine months ended September 30, 2020,2021, we declared and paid regular quarterly distributions to common shareholders using cash on hand or borrowings under our revolving credit facility as follows:
Declaration DateRecord DatePaid DateDividend Per Common ShareTotal Distributions
January 16, 2020January 27, 2020February 20, 2020$0.54 $88,863
March 30, 2020April 21, 2020May 21, 2020$0.01 $1,646
July 16, 2020July 27, 2020August 20, 2020$0.01 $1,646
$0.56 $92,155
Declaration DateRecord DatePaid DateDividend Per Common ShareTotal Distributions
January 14, 2021January 25, 2021February 18, 2021$0.01 $1,648 
April 15, 2021April 26, 2021May 20, 20210.01 1,648 
July 15, 2021July 26, 2021August 19, 20210.01 1,648 
$0.03 $4,944 
On October 15, 2020,14, 2021, we declared a regular quarterly distribution to common shareholders of record on October 26, 202025, 2021 of $0.01 per share, or $1,646.$1,651. We expect to pay this amount on or about November 19, 2020.
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18, 2021 using cash on hand.
In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $1,000,000 revolving credit facility and, until it was repaid on November 5, 2020, a $400,000 term loan which areis governed by a credit agreement with a syndicate of institutional lenders. The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions as noted below, we have an option to extend the maturity date of this facility forby two additional six-month periods. We are required to pay interest at the rate of LIBOR plus a premium, which was 205235 basis points per annum, subject to a LIBOR floor of 0.50%, at September 30, 2020,2021, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum at September 30, 2020.2021. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. We can borrow, subject to meeting certain financial covenants, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of September 30, 2020,2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.55%2.85%. As of September 30, 2020,On January 19, 2021, we had $80,086 outstanding and $919,914 available to borrow under our revolving credit facility. As of November 6, 2020, we had $475,645 outstanding and $524,355 available to borrowborrowed $972,793 under our revolving credit facility subjectas a precautionary measure to the minimum liquidity requirements under our credit agreement described below.
Our term loan, which was scheduled to mature on July 15, 2023, was prepayable without penalty at any time. We were required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 225 basis points per annum, subject to a LIBOR floor of 0.50%, at September 30, 2020. The interest rate premium was subject to adjustment based upon changes to our credit ratings.preserve financial flexibility. As of September 30, 2020, the annual interest rate for the amount outstanding2021, we were fully drawn under our term loan was 2.75%. We repaid this term loan on$1,000,000 revolving credit facility and remain fully drawn as of November 5, 2020.3, 2021.
We and our lenders amended our credit agreement governing our $1,000,000 revolving credit facility and $400,000 term loan on May 8, 2020 and again on November 5,in 2020. The May 2020 amendment provided a waiver of certainAmong other things, the amendments waived all of the then existing financial covenants under our credit agreement through March 31, 2021, or the Waiver Period, during which, subject to certain conditions, we continued to have access to undrawn amounts underPeriod. As a result of the credit facility.
During the Waiver Period, and continuing thereafter until such time as we had demonstrated compliance with certain of our financial covenants as of June 30, 2021:
we were required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000;
our interest rate premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points;
our ability to pay distributions on our common shares was limited to amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes, and to pay a cash dividend of $0.01 per common share per quarter;
we were subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for,amendments, among other things, certain categories of capital expenditures and costs, and certain share purchases);
we were generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic-related government stimulus programs to the repayment of outstanding loans under the credit agreement; andthings:
we pledged equity interests in certain of our property owning subsidiaries to secure our obligations under the credit agreement. These subsidiaries owned properties with $1,028,155 of undepreciated book value as of September 30, 2020.
As a result of the November 2020 amendment:
all existing financial covenants have been waived through the New Waiver Period;
we repaid our $400,000 term loan on November 5, 2020 using undrawn amounts under our revolving credit facility;
we have pledged certain additional equity interests of subsidiaries owning properties. Following the closing of the amendment, we will provideproperties and provided first mortgage liens on 74 properties owned by certain of the pledgingpledged subsidiaries with an undepreciated book value of $1,837,392$1,834,420 as of September 30, 20202021 to secure our obligations under the credit agreement;
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we have the ability to fund up to $250,000 of capital expenditures per year and up to $50,000 of certain other investments per year as defined in the credit agreement;
the interest rate premium over LIBOR under our revolving credit facility increased by 30 basis points;
we agreed to certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions), and the;
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we agreed to maintain minimum liquidity requirement of $125,000 will remain in place during the New Waiver Period; and$125,000;

we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to the repayment ofrepay outstanding loansamounts under the credit agreement, and then to other debt maturities.maturities;

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

we may not, during the Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances.

Our term debt maturities (other than our revolving credit facility and term loan)facility) as of September 30, 20202021 were as follows:
YearYearMaturityYearMaturity
2020$— 
2021202150,000 2021$— 
20222022500,000 2022500,000 
20232023500,000 2023500,000 
202420241,175,000 20241,175,000 
202520251,150,000 20251,150,000 
20262026800,000 2026800,000 
20272027400,000 2027850,000 
20282028400,000 2028400,000 
20292029425,000 2029425,000 
20302030400,000 2030400,000 
$5,800,000 $6,200,000 
None of our unsecured debt obligations require principal or sinking fund payments prior to their maturity dates.
We currently expect to use cash on hand, the cash flows from our operations, borrowings under our revolving credit facility (when available), net proceeds from any asset sales and net proceeds of offerings of equity or debt securities, as allowed by our existing credit agreement, to fund our operations, capital expenditures, future debt maturities, operations, capital expenditures, distributions to our shareholders and other general business purposes.
When significant amounts are outstanding for an extended period of time under our revolving credit facility, or the maturities of our indebtedness approach, we currently expect to explore refinancing alternatives. Such alternatives may include incurring additional debt when permitted under our debt agreements, 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 generally have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase. Also, as noted above, we are limited in our ability to incur additional debt during the New Waiver Period pursuant to our credit agreement.debt agreements and are not permitted under our debt agreements to incur any debt while below the 1.5x debt service coverage ratio requirement under our public debt covenants as described below.
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Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then perceived creditworthiness. We have no control over market conditions. Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the continued duration and severity of the currentCOVID-19 pandemic and its impact on economic downturn resulting from the COVID-19 pandemicconditions are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt the capital markets generally and limit our access to financing from public sources or on favorable terms, particularly if the global financial markets experience significant disruptions.
Off Balance Sheet Arrangements
As of September 30, 2020, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Debt Covenants
Our debt obligations at September 30, 20202021 consisted of outstanding borrowings under our $1,000,000 revolving credit facility our $400,000 term loan and $5,800,000$6,200,000 of publicly issued term debt. Our publicly issued term debt is governed by our indentures and related supplements. These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios and our credit agreement currently restricts our ability to make certain investments and limits our 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, 2020,2021, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement, subject to the waivers described above. Asand except as noted above in response to current market conditions we and our lenders amended our credit agreement to provide waivers of certain covenants.below.
Senior Notes Indenture Covenants
We are in compliance with all of the financial covenants applicable to our senior unsecured notes. The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of September 30, 2020:2021:
Actual ResultsCovenant Requirement
Total debt / adjusted total assets50.4%55.5%Maximum of 60%
Secured debt / adjusted total assets3.9%7.7%Maximum of 40%
Consolidated income available for debt service / debt service2.05x1.06xMinimum of 1.50x
Total unencumbered assets / unsecured debt197.2%179.5%Minimum 150%
The above consolidated income available for debt service to debt service coverage ratio as of September 30, 20202021 is based on results for the nine months ended September 30, 2021 and the fourth quarter of 2019 and first, second and third quarters of 2020. This ratio was 2.86x1.06x as of year-end 2019, 2.87xSeptember 30, 2021, which was below the required level and was 1.00x as of June 30, 2021, 1.12x as of March 31, 2020, 2.85x2021 and 1.56x as of June 30, 2020 and, as noted above, was 2.05x as of September 30,December 31, 2020. We expect this ratio to continue to decline in 2020 as more quarters of historically weak operations resulting from the COVID-19 pandemic are reflected in the calculation. We expect the ratio could fall below the 1.5x requirement as of the end of the first quarter of 2021 and we will not be ablepermitted under our debt agreements to incur additional debt while we remain below the ratio is below this requirement.
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required covenant level.
Acceleration and Cross-Default
Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration which could be triggered by a change in our debt ratings. However, under our credit agreement, our highest senior debt rating is used to determine the fees and interest rates we pay. Accordingly, if that debt rating is downgraded, our interest expense and related costs under our revolving credit facility would increase.
Our public debt indentures and their supplements contain cross default provisions to any other debt of $20,000 or more ($50,000 or more in the case of our indenture entered into in February 2016 and its supplements). Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or more.
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Supplemental Guarantor Information
In March 2020, the Securities and Exchange Commission, or SEC, approved Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, or Release 33-10762. Release 33-10762 amends the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met. The amendments in Release 33-10762 are generally effective for filings on or after January 4, 2021, with early application permitted. We adopted the new disclosure requirements permitted under Release 33-10762 effective for the quarter ended March 31, 2020.
Our $800,000 of 7.50% unsecured senior notes due 2025, or the 2025 Notes, and our $450,000 of 5.50% unsecured senior notes due 2027, or the 2027 Notes, are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement. The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $5,000,000$4,950,000 of senior unsecured notes do not have the benefit of any guarantees.
A subsidiary guarantor's guarantee of the $800,000 notes2025 Notes and 2027 Notes and all other obligations of such subsidiary guarantor under the indentureindentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and thesuch indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investors Service, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s, or S&P, or if Moody’s or Standard & Poor’sS&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due on these notes or the guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of these notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, these notes and the related guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries:
As of September 30, 2020As of December 31, 2019As of September 30, 2021As of December 31, 2020
Real estate properties, net(1)
Real estate properties, net(1)
$6,794,249 $7,200,561 
Real estate properties, net(1)
$6,249,242 $5,871,790 
Intercompany balances(2)
Intercompany balances(2)
613,532 728,918 
Intercompany balances(2)
687,319 800,198 
Other assets, netOther assets, net829,160 644,768 Other assets, net1,675,530 677,408 
Total assets$8,236,941 $8,574,247 
Indebtedness, netIndebtedness, net$6,212,174 $6,062,547 Indebtedness, net$7,139,787 $6,208,590 
Other liabilitiesOther liabilities329,185 451,374 Other liabilities398,649 341,907 
Total liabilities$6,541,359 $6,513,921 
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Nine Months Ended
September 30, 2020
Year Ended December 31, 2019
Revenues$916,970 $2,284,612 
Expenses1,160,666 2,053,200 
Net income (loss)(243,696)231,412 
Nine Months Ended
September 30, 2021
Revenues$536,755 
Expenses617,225 
Net income (loss)(80,470)
(1)Real estate properties, net as of September 30, 2020 and December 31, 2019,2021 includes $205,240 and $249,620, respectively,$303,962 of properties owned directly by us and not included in the assets of the subsidiary guarantors.
(2)Intercompany balances represent receivables from non-guarantor subsidiaries.
Management Agreements, Leases and Operating Statistics (dollar amounts in thousands)thousands, except hotel statistics)
As of September 30, 2020,2021, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 149146 brands across 2322 industries.
Hotel Portfolio
As of September 30, 2020, 329 of our hotels (including one leased hotel) were included in six portfolio agreements. As of September 30, 2020, our hotels were managed by or leased to separate affiliates of IHG, Marriott, Sonesta, Hyatt, Radisson and Wyndham under six agreements.
The tables and related notes below through page 49 summarize significant terms of our hotel lease and management agreements as of September 30, 2020. These tables also include statistics reported to us or derived from information reported to us by our hotel managers and tenant. These statistics include coverage of our minimum returns or minimum rents and occupancy, ADR and RevPAR for our hotel properties. We consider these statistics and the management agreement or lease security features also presented in the tables and related notes on the following pages to be important measures of our managers’ and tenant’s success in operating our hotel properties and their ability to continue to pay us. However, this third party reported information is not a direct measure of our financial performance and we have not independently verified the operating data.
Operating Agreement Reference NameNumber of PropertiesNumber of Rooms or Suites (Hotels)
Investment (1)
Annual Minimum Return/Rent (2)
Rent / Return Coverage (3)
Three Months EndedTwelve Months Ended
September 30,September 30,
2020201920202019
IHG (4)
103 17,154 $2,381,721 $216,551 0.13x0.89x0.31x0.89x
Marriott (5)
122 17,085 1,891,334 194,613 0.02x1.16x0.24x1.08x
Sonesta (6)
56 10,297 2,067,982 124,795 (0.30)x0.55x(0.18)x0.59x
Hyatt (7)
22 2,724 301,942 22,037 0.01x0.77x0.18x0.90x
Radisson (8)
1,939 289,139 20,442 (0.55)x1.38x(0.12)x0.95x
Wyndham (9)
17 2,205 159,497 13,030 (0.30)x0.70x(0.24)x0.48x
Total / Average Hotels329 51,404 $7,091,615 $591,468 (0.04)x0.90x0.14x0.87x
(1)Represents the historical cost of our hotel properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from FF&E reserves funded from hotel operations which do not result in increases in hotel minimum returns or rents.
(2)Each of our hotel management agreements or leases provides for payment to us of an annual minimum return or rent, respectively. Certain of these minimum payment amounts are secured by full or limited guarantees or security deposits as more fully described below. In addition, certain of our hotel management agreements provide for payment to us of additional amounts to the extent of available cash flows as defined in the management agreement. Payments of these additional amounts are not guaranteed or secured by deposits. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments necessary to record rent on a straight-line basis.
(3)We define hotel coverage as combined total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to hotel minimum returns or rents due to us (which data is provided to us by our hotel managers or tenant), divided by the hotel minimum returns or rents due to us. Coverage amounts for the IHG agreement include data for periods prior to our ownership of certain hotel properties. Coverage amounts for our Sonesta agreement include data for five hotels prior to when they were managed by Sonesta.
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(4)We lease 102 IHG branded hotels (20 Staybridge Suites®, 61 Candlewood Suites®, two InterContinental®, 11 Crowne Plaza®, three Holiday Inn® and five Kimpton® Hotels & Restaurants) in 30 states in the U.S., the District of Columbia and Ontario, Canada to one of our wholly owned taxable REIT subsidiaries, or TRSs. These 102 hotels are managed by subsidiaries of IHG under a combination management agreement. We lease one additional InterContinental® branded hotel in Puerto Rico to a subsidiary of IHG. The annual minimum return amount presented in the table above includes $7,908 of minimum rent related to the leased Puerto Rico hotel. The management agreement and the lease were scheduled to expire in 2036; IHG had two renewal options for 15 years each for all, but not less than all, of the hotels. The IHG agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. This requirement to fund FF&E reserves was waived through September 30, 2020. In addition to our minimum return, this management agreement provides for an annual additional return payment to us of $12,067 from the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve payment of our minimum return, working capital advances, payment of certain management fees and replenishment and expansion of the security deposit, if any. In addition, the agreement provides for payment to us of 50% of the hotels' available cash flows after payment to us of the annual additional return amount. These additional return amounts are not guaranteed or secured by the security deposit we held.
We sent notices of default and termination to IHG for failure to pay minimum returns and rents due to us of $36,776 for the third quarter of 2020 and that we will transfer the branding and management of 102 of the 103 hotels to Sonesta on December 1, 2020.
(5)We lease our 122 Marriott branded hotels (two full service Marriott®, 35 Residence Inn by Marriott®, 71 Courtyard by Marriott®, 12 TownePlace Suites by Marriott® and two SpringHill Suites by Marriott® hotels) in 31 states to certain of our TRSs. The hotels under the Marriott agreement are managed by subsidiaries of Marriott and require aggregate annual minimum returns of $194,613. The Marriott agreement was scheduled to expire in 2035 and Marriott had two renewal options for 10 years each for all, but not less than all, of the hotels. Our Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under our Marriott agreement for the remainder of 2020. In addition to our minimum return, this agreement provides for payment to us of 60% of the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve, payment of our minimum return, payment of certain management fees, working capital advances and replenishment of the security deposit.
We sent notices to Marriott terminating our agreement for its failure to cover the $23,952 cumulative shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us for the nine months ended September 30, 2020. The effective date of the termination is January 31, 2021 and we currently plan to transfer to Sonesta the branding and management of 98 of these hotels to the extent not sold.
(6)We lease our 56 Sonesta branded hotels (seven Royal Sonesta® Hotels, nine Sonesta Hotels & Resorts® and 40 Sonesta ES Suites® hotels) in 26 states to certain of our TRSs. 53 of these hotels are managed by Sonesta under a combination management agreement which expires in 2037; Sonesta has two renewal options for 15 years each for all, but not less than all, of these 53 hotels. Three hotels that were rebranded to Sonesta from Wyndham in September 2020 are operating under agreements that expire on December 31, 2021. On October 1, 2020, we rebranded one additional hotel previously managed by Wyndham to Sonesta.
We have no security deposit or guaranty from Sonesta. Accordingly, payment by Sonesta of the minimum return due to us under this management agreement is limited to the hotels' available cash flows after the payment of operating expenses, including certain management fees, and we are financially responsible for operating cash flows deficits, if any.
In addition to our minimum return, this management agreement provides for payment to us of 80% of the hotels' available cash flows after payment of hotel operating expenses, including certain management fees to Sonesta, our minimum return, working capital advances and any required FF&E reserves.
(7)We lease our 22 Hyatt Place® branded hotels in 14 states to one of our TRSs. The hotels are managed by a subsidiary of Hyatt, under a combination management agreement that expires in 2030. Hyatt has two renewal options for 15 years each for all, but not less than all, of the hotels.
We have a limited guaranty of $50,000 under this agreement to cover payment shortfalls of our minimum return. As of September 30, 2020, the available Hyatt guaranty was $3,116. The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances.
In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Hyatt of working capital and guaranty advances, if any. This additional return is not guaranteed.
Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve, subject to available cash flow.
(8)We lease our nine Radisson branded hotels (four Radisson® Hotels & Resorts, four Country Inns & Suites® by Radisson and one Radisson Blu® hotel) in six states to one of our TRSs and these hotels are managed by a subsidiary of Radisson under a combination management agreement which expires in 2035 and Radisson has two 15-year renewal options for all, but not less than all, of the hotels.
We have a limited guaranty of $47,523 under this agreement to cover payment shortfalls of our minimum return. As of September 30, 2020, the available Radisson guaranty was $19,487. The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances.
In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any. This additional return is not guaranteed.
Our Radisson agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effective April 1, 2020, we and Radisson have agreed to suspend contributions to the FF&E reserve under our Radisson agreement for the remainder of 2020.
(9)As of September 30, 2020, 17 of our hotels were operated under a management agreement with Wyndham. In September 2020, we amended the management agreement with Wyndham so that it will continue as the manager of these Wyndham branded hotels for a limited time. Under the amended terms of this agreement, we will pay Wyndham a management fee of 7% of hotel revenues, subject to certain minimums. In September 2020, we rebranded three hotels previously managed by Wyndham to Sonesta. On October 1, 2020, we rebranded one additional Wyndham hotel previously managed by Wyndham to Sonesta. We expect to sell 15 Wyndham branded hotels in the fourth quarter of 2020.
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Hotel Portfolio
The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenanttenants by management agreement or leasehotel brand for the periods indicated. All operating data presented are based upon the operating results provided by our hotel managers and tenanttenants for the indicated periods. We have not independently verified our managers’ or tenants’ operating data.
No. of
Hotels
No. of Rooms /
Suites
Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change
ADR
IHG  (1)
103 17,154 $80.80 $122.03 (33.8 %)93.06 123.32 (24.5 %)
Marriott122 17,085 103.70 136.82 (24.2 %)120.67 138.67 (13.0 %)
Sonesta (2)
56 10,297 99.04 138.47 (28.5 %)109.87 143.89 (23.6 %)
Hyatt22 2,724 86.36 105.76 (18.3 %)94.43 109.67 (13.9 %)
Radisson1,939 91.17 141.65 (35.6 %)112.01 136.66 (18.0 %)
Wyndham17 2,205 57.68 81.14 (28.9 %)64.63 80.14 (19.4 %)
All Hotels Total / Average329 51,404 $89.88 $128.33 (30.0 %)$103.30 $130.31 (20.7 %)
OCCUPANCY
IHG  (1)
103 17,154 54.8 %79.9 %(25.1) pts51.8 %77.7 %(25.9) pts
Marriott122 17,085 34.6 %75.7 %(41.1) pts35.7 %72.4 %(36.7) pts
Sonesta (2)
56 10,297 42.8 %75.0 %(32.2) pts41.0 %70.7 %(29.7) pts
Hyatt22 2,724 47.1 %79.4 %(32.3) pts44.9 %78.9 %(34.0) pts
Radisson1,939 25.2 %79.5 %(54.3) pts30.5 %72.7 %(42.2) pts
Wyndham17 2,205 41.8 %69.7 %(27.9) pts41.7 %65.9 %(24.2) pts
All Hotels Total / Average329 51,404 43.6 %77.0 %(33.4) pts42.7 %73.9 %(31.2) pts
RevPAR
IHG  (1)
103 17,154 $44.28 $97.50 (54.6 %)48.21 95.82 (49.7 %)
Marriott122 17,085 35.88 103.57 (65.4 %)43.08 100.40 (57.1 %)
Sonesta (2)
56 10,297 42.39 103.85 (59.2 %)45.05 101.73 (55.7 %)
Hyatt22 2,724 40.68 83.97 (51.6 %)42.40 86.53 (51.0 %)
Radisson1,939 22.97 112.61 (79.6 %)34.16 99.35 (65.6 %)
Wyndham17 2,205 24.11 56.55 (57.4 %)26.95 52.81 (49.0 %)
All Hotels Total / Average329 51,404 $39.19 $98.81 (60.3 %)$44.11 $96.30 (54.2 %)
Comparable Hotels*No. of Rooms or SuitesOccupancyADRRevPAR
Service LevelNo. of HotelsThree months ended September 30,Three months ended September 30,Three months ended September 30,
Brand20212020Change20212020Change20212020Change
Sonesta (1)
Full Service216,880 54.2 %35.6 %18.6 pts$143.06 $117.20 22.1 %$77.54 $41.72 85.8 %
Royal Sonesta (1)
Full Service10 3,370 41.4 %20.4 %21.0 pts196.83 138.21 42.4 %81.49 28.19 189.0 %
Radisson HotelFull Service969 60.1 %31.2 %28.9 pts114.25 91.24 25.2 %68.66 28.47 141.2 %
Crowne PlazaFull Service495 51.1 %29.9 %21.2 pts123.47 92.88 32.9 %63.09 27.77 127.2 %
Country Inn and SuitesFull Service430 62.4 %29.1 %33.3 pts130.77 90.88 43.9 %81.60 26.45 208.6 %
Radisson BluFull Service360 34.9 %14.1 %20.8 pts124.30 92.30 34.7 %43.38 13.01 233.3 %
Full Service Total/Average4012,50450.8 %30.1 %20.7 pts150.64 116.78 29.0 %76.53 35.15 117.7 %
Sonesta Select (1)
Select Service638,888 42.2 %28.7 %13.5 pts112.78 94.11 19.8 %47.59 27.01 76.2 %
Hyatt PlaceSelect Service172,107 66.7 %47.1 %19.6 pts111.53 88.21 26.4 %74.39 41.55 79.1 %
CourtyardSelect Service13 1,813 61.1 %32.1 %29.0 pts114.08 87.58 30.3 %69.70 28.11 147.9 %
Select Service Total/Average9312,80848.9 %32.2 %16.7 pts112.73 91.77 22.8 %55.12 29.55 86.5 %
Sonesta ES Suites (1)
Extended Stay91 11,326 73.5 %60.0 %13.5 pts107.09 96.96 10.4 %78.71 58.18 35.3 %
Sonesta Simply Suites (1)
Extended Stay65 8,040 78.6 %70.3 %8.3 pts73.84 65.38 12.9 %58.04 45.96 26.3 %
Residence InnExtended Stay342 69.9 %46.8 %23.1 pts118.37 102.45 15.5 %82.74 47.95 72.6 %
Extended Stay Total/Average15919,70875.4 %64.0 %11.4 pts93.40 82.82 12.8 %70.42 53.00 32.9 %
Comparable Hotels Total/Average292 45,020 60.9 %45.5 %15.4 pts$111.18 $90.87 22.4 %$67.71 $41.35 63.7 %

Comparable Hotels*No. of Rooms or SuitesOccupancyADRRevPAR
Service LevelNo. of HotelsNine months ended September 30,Nine months ended September 30,Nine months ended September 30,
Brand20212020Change20212020Change20212020Change
Sonesta (1)
Full Service186,110 45.2 %38.0 %7.2 pts$112.69 $120.44 (6.4)%$50.94 $45.77 11.3 %
Royal Sonesta (1)
Full Service2,002 31.7 %28.7 %3.0 pts159.52 152.79 4.4 %50.57 43.85 15.3 %
Radisson HotelFull Service969 50.9 %36.5 %14.4 pts104.19 106.76 (2.4)%53.03 38.97 36.1 %
Crowne PlazaFull Service495 46.6 %28.9 %17.7 pts110.77 120.55 (8.1)%51.62 34.84 48.2 %
Country Inn and SuitesFull Service84 51.7 %44.1 %7.6 pts88.16 83.54 5.5 %45.58 36.84 23.7 %
Radisson BluFull Service360 23.7 %26.2 %(2.5)pts110.09 112.06 (1.8)%26.09 29.36 (11.1)%
Full Service Total/Average3210,02042.4 %35.2 %7.2 pts118.31 123.73 (4.4)%50.16 43.55 15.2 %
Sonesta Select (1)
Select Service638,888 35.7 %31.2 %4.5 pts99.91 114.77 (12.9)%35.67 35.81 (0.4)%
Hyatt PlaceSelect Service172,107 59.9 %45.1 %14.8 pts99.56 96.61 3.1 %59.64 43.57 36.9 %
CourtyardSelect Service13 1,813 50.6 %29.4 %21.2 pts101.10 96.05 5.3 %51.16 28.24 81.2 %
Select Service Total/Average9312,80841.8 %33.2 %8.6 pts100.03 108.38 (7.7)%41.81 35.98 16.2 %
Sonesta ES Suites (1)
Extended Stay91 11,326 66.1 %53.2 %12.9 pts97.64 104.83 (6.9)%64.54 55.77 15.7 %
Sonesta Simply Suites (1)
Extended Stay63 7,796 69.0 %64.5 %4.5 pts69.19 70.95 (2.5)%47.74 45.76 4.3 %
Residence InnExtended Stay342 56.8 %43.7 %13.1 pts109.29 105.99 3.1 %62.08 46.32 34.0 %
Extended Stay Total/Average15719,46467.1 %57.5 %9.6 pts86.17 89.61 (3.8)%57.82 51.53 12.2 %
Comparable Hotels Total/Average282 42,292 53.5 %44.9 %8.6 pts$95.50 $100.17 (4.7)%$51.09 $44.98 13.6 %
*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, 2021 and 2020, our comparable results excluded 12 hotels that had suspended operations during part of the periods presented and for the nine months ended September 30, 2021 and 2020, our comparable results excluded 22 hotels that had suspended operations during part of the periods presented.
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Table of Contents
All Hotels*No. of Rooms or SuitesOccupancyADRRevPAR
Service LevelNo. of HotelsThree months ended September 30,Three months ended September 30,Three months ended September 30,
Brand20212020Change20212020Change20212020Change
Sonesta (1)
Full Service258,040 52.8 %30.8 %22.0 Pts$142.31 $117.19 21.4 %$75.14 $36.09 108.2 %
Royal Sonesta (1)
Full Service16 5,303 44.2 %18.0 %26.2 Pts206.29 133.20 54.9 %91.18 23.98 280.3 %
Radisson HotelFull Service1,149 58.1 %27.2 %30.9 Pts113.20 91.11 24.2 %65.77 24.78 165.4 %
Crowne PlazaFull Service495 51.1 %29.9 %21.2 Pts123.47 92.88 32.9 %63.09 27.77 127.2 %
Country Inn and SuitesFull Service430 62.4 %29.1 %33.3 Pts130.77 90.88 43.9 %81.60 26.45 208.6 %
Radisson BluFull Service360 34.9 %14.1 %20.8 Pts124.30 92.30 34.7 %43.38 13.01 233.3 %
Full Service Total/Average5115,77750.2 %26.2 %24.0 Pts156.66 116.37 34.6 %78.64 30.49 157.9 %
Sonesta Select (1)
Select Service638,888 42.2 %28.7 %13.5 Pts112.78 94.11 19.8 %47.59 27.01 76.2 %
Hyatt PlaceSelect Service172,107 66.7 %47.1 %19.6 Pts111.53 88.21 26.4 %74.39 41.55 79.1 %
CourtyardSelect Service13 1,813 61.1 %32.1 %29.0 Pts114.08 87.58 30.3 %69.70 28.11 147.9 %
Select Service Total/Average9312,80848.9 %32.2 %16.7 Pts112.73 91.77 22.8 %55.12 29.55 86.5 %
Simply ES Suites (1)
Extended Stay92 11,472 73.2 %59.4 %13.8 Pts107.26 96.89 10.7 %78.51 57.55 36.4 %
Sonesta Simply Suites (1)
Extended Stay65 8,040 78.6 %70.3 %8.3 Pts73.84 65.38 12.9 %58.04 45.96 26.3 %
Residence InnExtended Stay342 69.9 %46.8 %23.1 Pts118.37 102.45 15.5 %82.74 47.95 72.6 %
Extended Stay Total/Average16019,85475.3 %63.6 %11.7 Pts93.58 82.80 13.0 %70.47 52.66 33.8 %
All Hotels Total/Average304 48,439 60.1 %43.4 %16.7 Pts$114.55 $90.99 25.9 %$68.84 $39.49 74.3 %
All Hotels*No. of Rooms or SuitesOccupancyADRRevPAR
Service LevelNo. of HotelsNine months ended September 30,Nine months ended September 30,Nine months ended September 30,
Brand20212020Change20212020Change20212020Change
Sonesta (1)
Full Service258,040 45.2 %35.3 %9.9 Pts$127.71 $126.15 1.2 %$57.72 $44.53 29.6 %
Royal Sonesta (1)
Full Service16 5,303 35.1 %26.0 %9.1 Pts186.68 183.16 1.9 %65.52 47.62 37.6 %
Radisson HotelFull Service1,149 48.4 %33.3 %15.1 Pts103.06 114.62 (10.1)%49.88 38.17 30.7 %
Crowne PlazaFull Service495 46.6 %28.9 %17.7 Pts110.77 120.55 (8.1)%51.62 34.84 48.2 %
Country Inn and SuitesFull Service430 48.8 %26.7 %22.1 Pts110.59 103.60 6.7 %53.97 27.66 95.1 %
Radisson BluFull Service360 23.7 %26.2 %(2.5)Pts110.09 112.06 (1.8)%26.09 29.36 (11.1)%
Full Service Total/Average5115,77741.8 %31.6 %10.2 Pts140.33 138.91 1.0 %58.66 43.90 33.6 %
Sonesta Select (1)
Select Service638,888 42.2 %31.2 %11.0 Pts99.91 114.77 (12.9)%42.16 35.81 17.7 %
Hyatt PlaceSelect Service172,107 66.7 %45.1 %21.6 Pts99.56 96.61 3.1 %66.41 43.57 52.4 %
CourtyardSelect Service13 1,813 61.1 %29.4 %31.7 Pts101.10 96.05 5.3 %61.77 28.24 118.7 %
Select Service Total/Average9312,80841.8 %33.2 %8.6 Pts100.03 108.38 (7.7)%41.81 35.98 16.2 %
Simply ES Suites (1)
Extended Stay92 11,472 73.2 %52.8 %20.4 Pts97.78 105.05 (6.9)%71.57 55.47 29.0 %
Sonesta Simply Suites (1)
Extended Stay65 8,040 78.6 %63.6 %15.0 Pts68.81 70.69 (2.7)%54.08 44.96 20.3 %
Residence InnExtended Stay342 69.9 %43.7 %26.2 Pts109.29 105.99 3.1 %76.39 46.32 64.9 %
Extended Stay Total/Average16019,85467.1 %57.0 %10.1 Pts85.95 89.53 (4.0)%57.67 51.03 13.0 %
All Hotels Total/Average304 48,439 52.2 %42.6 %9.6 Pts$102.84 $105.14 (2.2)%$53.68 $44.79 19.8 %
*    Results of all hotels owned as of September 31, 2021. Excludes the results of hotels sold during the periods presented.
(1)OperatingIncludes operator data includes data for certain hotels for periods prior to when we acquired them.
(2)Operating data includes data for fivecertain hotels for periods prior to when these were managed by Sonesta.

Net Lease Portfolio
As of September 30, 2020, our 804 net lease properties located in 42 states were leased to 183 tenants. These tenants operate in 22 distinct industries including travel centers, casual dining and quick service restaurants, movie theaters, health and fitness, automobile service and others. TA is our largest tenant and leases 179 travel centers under five master lease agreements that expire between 2029 and 2035 and require annual minimum rents of $246,110, which represents approximately 25.6% of our total minimum returns and rent as of September 30, 2020.
As of September 30, 2020,2021, our net lease properties were 98.0%98.2% occupied and we had 1430 properties available for lease. During the threenine months ended September 30, 20202021, we entered into lease renewals for 496,756607,614 rentable square feet at weighted (by rentable square feet) average rents that were 11.6% below prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 13.6 years and leasing concessions and capital commitments were $4,897, or $9.86 per square foot.14.1 years. Also during the quarternine months ended September 30, 2020,2021, we entered into new leases for an aggregate of 2,535159,633 rentable square feet at weighted (by rentable square feet) average rents that were 34.7% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was six years and leasing concessions and capital commitments were $189,210, or $74.64 per square foot. During the nine months ended September 30, 2020 we entered into lease renewals for 1,063,320 rentable square feet at weighted (by rentable square feet) average rents that were 20.2%36.9% below prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 13.2 years and leasing concessions and capital commitments were $12,398, or $11.66 per square foot. Also during the nine months ended September 30, 2020, we entered into new leases for an aggregate of 42,427 rentable square feet at weighted (by rentable square feet) average rents that were 1.40% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was six years and leasing concessions and capital commitments were $346, or $8.15 per square foot.14.1 years.
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As of September 30, 2020,2021, our net lease tenants operated across more than 129134 brands. The following table identifies the top ten brands.brands based on investment.
BrandNo. of Buildings
Investment (1) (3)
Percent of Total Investment
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent (2) (3)
Coverage (4)
BrandNo. of Buildings
Investment (1) (3)
Percent of Total Investment (3)
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent (2) (3)
Coverage (4)
1.1.TravelCenters of America134$2,281,589 44.0 %$168,011 45.4 %1.94 x1.TravelCenters of America134$2,289,189 44.4 %$168,012 45.3 %2.19 x
2.2.Petro Stopping Centers451,021,226 19.7 %78,099 21.1 %1.53 x2.Petro Stopping Centers451,021,226 19.8 %78,099 21.1 %1.90 x
3.3.AMC Theatres11102,580 2.0 %8,702 2.4 %0.72 x3.AMC Theatres11102,580 2.0 %8,237 2.2 %(0.16)x
4.4.The Great Escape1498,242 1.9 %7,140 1.9 %1.70 x4.The Great Escape1498,242 1.9 %7,140 1.9 %1.70 x
5.5.Life Time Fitness392,617 1.8 %5,770 1.6 %1.13 x5.Life Time Fitness392,617 1.8 %5,770 1.6 %0.62 x
6.6.Buehler's Fresh Foods576,536 1.5 %5,143 1.4 %4.79 x6.Buehler's Fresh Foods576,536 1.5 %5,657 1.5 %5.90 x
7.7.Heartland Dental5961,120 1.2 %4,493 1.2 %3.00 x7.Heartland Dental5961,120 1.2 %4,561 1.2 %5.04 x
8.8.Pizza Hut5959,502 1.1 %4,310 1.2 %1.31 x8.Norms1053,673 1.0 %1,584 0.4 %0.47 x
9.9.Express Oil Change2349,724 1.0 %3,379 0.9 %3.99 x9.Express Oil Change2349,724 1.0 %3,717 1.0 %3.57 x
10.10.Flying J Travel Plaza341,681 0.8 %3,151 0.9 %3.75 x10.Pizza Hut4247,641 0.9 %3,341 0.9 %1.59 x
11.11.
Other (5)
4481,297,122 25.0 %81,605 22.0 %3.00 x11.
Other (5)
4481,265,303 24.5 %84,827 22.9 %3.19 x
Total804$5,181,939 100.0 %$369,803 100.0 %2.12 xTotal794$5,157,851 100.0 %$370,945 100.0 %2.37 x
(1)Represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any.
(2)Each of our leases provides for payment to us of minimum rent. Certain of these minimum payment amounts are secured by full or limited guarantees. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis, or any reimbursement of expenses paid by us.
(3)As of September 30, 2020,2021, we have six net lease properties with a carrying value of $6,735 and annual minimum rent of $536$214 classified as held for sale.
(4)See page 4029 for our definition of coverage.
(5)Other includes 119124 distinct brands with an average investment of $10,900$10,204 and average annual minimum rent of $686.$684.

As of September 30, 2020,2021, our top 10 net lease tenants based on annualized minimum rent are listed below.
TenantBrand AffiliationNo. of Buildings
Investment (1) (2)
Percent of Total Investment
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent
Coverage (4)
TenantBrand AffiliationNo. of Buildings
Investment (1) (2)
Percent of Total Investment
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent (2) (3)
Coverage (4)
1.1.TravelCenters of AmericaTravelCenters of America/ Petro Shopping Centers179$3,302,815 63.7 %$246,110 66.6 %1.81x(5) (6)1.TravelCenters of AmericaTravelCenters of America/ Petro Shopping Centers179$3,310,415 65.0 %$246,110 66.4 %2.10x(5)
2.2.Universal Pool Co., Inc.The Great Escape1498,242 1.9 %7,140 1.9 %1.70x2.American Multi-Cinema, Inc.AMC Theatres11102,580 2.0 %8,237 2.2 %-0.16x
3.3.Healthy Way of Life II, LLCLife Time Fitness392,617 1.8 %5,770 1.6 %1.13x(5)3.Universal Pool Co., Inc.The Great Escape1498,242 1.9 %7,140 1.9 %1.70x
4.4.Styx Acquisition, LLCBuehler's Fresh Foods576,536 1.5 %5,143 1.4 %4.79x(5)4.Healthy Way of Life II, LLCLife Time Fitness392,617 1.8 %5,770 1.6 %0.62x
5.5.Professional Resource Development, Inc.Heartland Dental5961,120 1.2 %4,493 1.2 %3.00x

5.Styx Acquisition, LLCBuehler's Fresh Foods576,536 1.5 %5,657 1.5 %5.90x

6.6.Eastwynn Theatres, Inc.AMC Theatres541,771 0.8 %3,541 1.0 %0.32x6.Professional Resource Development, Inc.Heartland Dental5961,120 1.2 %4,561 1.2 %5.04x
7.7.Express Oil Change, L.L.C.Express Oil Change2349,724 1.0 %3,379 0.9 %3.50x7.Norms Restaurants, LLCNorms1053,673 1.1 %1,584 0.4 %0.47x
8.8.Pilot Travel Centers LLCFlying J Travel Plaza341,681 0.8 %3,151 0.9 %3.50x8.Express Oil Change, L.L.C.Express Oil Change2349,724 1.0 %3,717 1.0 %3.57x
9.9.Automotive Remarketing Group, Inc.Automotive Remarketing Group634,314 0.7 %2,992 0.8 %4.85x9.Regal Cinemas, Inc.Regal Cinemas644,476 0.9 %3,658 1.0 %-0.08x
10.10.American Multi-Cinema, Inc.AMC Theatres235,310 0.7 %2,866 0.8 %0.59x10.Pilot Travel Centers LLCFlying J Travel Plaza341,681 0.8 %3,183 0.9 %4.03x
Subtotal, top 102993,834,130 74.1 %284,585 77.1 %1.91xSubtotal, top 103133,931,064 77.2 %289,617 78.1 %2.12x
11.11.
Other (7)
Various5051,347,809 25.9 %85,218 22.9 %2.83x11.
Other (6)
Various4811,226,787 22.8 %81,328 21.9 %3.26x
Total804$5,181,939 100.0 %$369,803 100.0 %2.12xTotal794$5,157,851 100.0 %$370,945 100.0 %2.37x
(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.
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Table of Contents
(3)As of September 30, 2020,2021, we have six net lease properties with an aggregate carrying value of $6,735 and annual minimum rent of $536$214 classified as held for sale.
(4)See page 4029 for our definition of coverage.
37

(5)Table of ContentsLeases subject to full or partial corporate guarantee.
(6)(5)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 five 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%(3.5% of non-fuel revenues above 2015 non-fuel revenues). These leases provide for payment of an additional half percent (0.5%) of non-fuel revenues above 2019 non-fuelapplicable base revenues.years). TA's remaining deferred rent obligation of $44,036$26,420 is being paid in quarterly installments of $4,404 through January 31, 2023.
(7)(6)Other includes 173165 tenants with an average investment of $7,791$7,435 and average annual minimum rent of $493.
As of September 30, 2020,2021, our net lease tenants operated across 2221 distinct industries within the service-oriented retail sector of the U.S. economy.
IndustryNo. of Buildings
Investment (1) (2)
Percent of Total Investment
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent
Coverage (4)
Travel Centers182$3,344,496 64.5%$249,261 67.5 %1.83 x
Restaurants-Quick Service248317,833 6.1%20,986 5.7 %2.31 x
Restaurants-Casual Dining55203,002 3.9%11,763 3.2 %1.72 x
Movie Theaters22190,725 3.7%11,783 3.2 %0.69 x
Health and Fitness13184,744 3.6%11,511 3.1 %1.13 x
Grocery19129,219 2.5%8,598 2.3 %4.60 x
Medical/Dental Office71118,098 2.3%9,185 2.5 %3.18 x
Miscellaneous Retail19114,433 2.2%8,892 2.4 %1.92 x
Automotive Parts and Service6396,496 1.9%6,583 1.8 %3.33 x
Automotive Dealers964,756 1.2%5,118 1.4 %4.98 x
Entertainment461,436 1.2%2,435 0.7 %1.61 x
Educational Services955,647 1.1%4,135 1.1 %2.08 x
Sporting Goods352,022 1.0%3,489 0.9 %3.06 x
Home Furnishings537,215 0.7%2,854 0.8 %0.92 x
Miscellaneous Manufacturing631,824 0.6%2,245 0.6 %15.93 x
Building Materials2730,036 0.6%2,523 0.7 %5.64 x
Car Washes528,658 0.6%2,086 0.6 %4.84 x
Drug Stores and Pharmacies823,970 0.5%1,646 0.4 %1.41 x
Legal Services511,362 0.2%1,019 0.3 %2.08 x
Apparel111,027 0.2%670 0.2 %3.14 x
General Merchandise37,492 0.1%541 0.1 %3.48 x
Dollar Stores32,971 0.1%186 0.1 %3.09 x
Other1025,905 0.5%2,294 0.4 %4.33 x
Vacant1438,572 0.7%— — %— 
Total804$5,181,939 100.0%$369,803 100.0 %2.12 x
IndustryNo. of Buildings
Investment (1) (2)
Percent of Total Investment
Annualized
Minimum Rent (2) (3)
Percent of Total Annualized
Minimum Rent
Coverage (4)
Travel Centers182$3,352,096 65.0%$249,293 67.2 %2.12x
Restaurants-Quick Service229304,704 5.9%20,418 5.5 %2.71x
Restaurants-Casual Dining56203,339 3.9%10,390 2.8 %1.69x
Movie Theaters22190,725 3.7%14,495 3.9 %-0.03x
Health and Fitness13185,458 3.6%10,747 2.9 %1.04x
Grocery Stores19129,219 2.5%9,123 2.5 %5.23x
Home Goods and Leisure20118,899 2.3%9,041 2.4 %1.99x
Medical, Dental Office71118,098 2.3%9,351 2.5 %4.63x
Automotive Equipment & Services6498,473 1.9%7,125 1.9 %2.74x
Automotive Dealers964,756 1.3%5,358 1.4 %7.08x
Entertainment461,436 1.2%4,334 1.2 %1.76x
General Merchandise Stores556,321 1.1%3,892 1.0 %3.14x
Educational Services955,647 1.1%4,376 1.2 %1.53x
Building Materials2731,317 0.6%2,608 0.7 %4.20x
Car Washes528,658 0.6%2,128 0.6 %1.76x
Miscellaneous Manufacturing732,873 0.6%2,445 0.7 %15.56x
Drug Stores and Pharmacies719,251 0.4%1,258 0.3 %1.61x
Sporting Goods317,595 0.3%1,070 0.3 %3.73x
Legal Services511,362 0.2%1,097 0.3 %-2.50x
Other410,419 0.2%2,210 0.6 %5.47x
Dollar Stores32,971 0.1%186 0.1 %3.59x
Vacant3064,234 1.2%— — %n/a
Total794$5,157,851 100.0%$370,945 100.0 %2.37x
(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, 2020,2021, we have six net lease properties with an aggregate carrying value of $6,735 and annual minimum rent of $536$214 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 4029 for our definition of coverage.
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As of September 30, 2020,2021, lease expirations at our net lease properties by year are as follows.
Year(1)
Year(1)
Square Feet
Annualized Minimum Rent Expiring (2)
Percent of Total Annualized Minimum Rent ExpiringCumulative % of Total Minimum Rent Expiring
Year(1)
Square Feet
Annualized Minimum Rent Expiring (2)
Percent of Total Annualized Minimum Rent ExpiringCumulative % of Total Minimum Rent Expiring
202077,720 $1,798 0.5%0.5%
20212021478,322 5,409 1.5%2.0%2021257,155 1,564 0.4%0.4%
20222022564,526 7,448 2.0%4.0%2022346,255 3,191 0.9%1.3%
20232023147,678 2,316 0.6%4.6%2023317,732 3,375 0.9%2.2%
20242024692,937 10,048 2.7%7.3%2024788,158 11,787 3.2%5.4%
20252025438,433 8,796 2.4%9.7%2025457,960 8,991 2.4%7.8%
20262026869,520 9,917 2.7%12.4%2026952,723 11,260 3.0%10.8%
202720271,064,806 14,379 3.9%16.3%2027974,398 13,300 3.6%14.4%
20282028555,109 9,597 2.6%18.9%2028553,330 9,649 2.6%17.0%
202920291,311,612 47,350 12.8%31.7%20291,324,129 47,794 13.0%30.0%
20302030184,368 3,987 1.1%32.8%2030144,290 4,203 1.1%31.1%
203120311,467,658 49,757 13.5%46.3%20311,313,222 48,684 13.1%44.2%
203220321,233,445 50,689 13.7%60.0%20321,266,322 53,229 14.4%58.6%
203320331,107,227 53,349 14.4%74.4%20331,105,956 52,410 14.1%72.7%
20342034134,640 4,523 1.2%75.6%2034104,508 3,719 1.0%73.7%
203520352,577,853 81,288 22.0%97.6%20352,577,853 84,573 22.8%96.5%
20362036320,792 5,306 1.4%99.0%2036291,408 4,878 1.3%97.8%
20372037— — 0.0%99.0%2037— — 0.0%97.8%
2038203810,183 416 0.1%99.1%203844,484 1,048 0.3%98.1%
20392039185,437 3,278 0.9%100.0%2039134,901 3,209 0.9%99.0%
204020401,739 152 0.0%100.0%204033,233 153 0.0%99.0%
20412041223,043 2,189 0.6%99.6%
2042204257,499 155 0.0%99.6%
20432043— — 0.0%99.6%
20442044— — 0.0%99.6%
2045204563,490 1,584 0.4%100.0%
TotalTotal13,424,005 $369,803 100%Total13,332,049 $370,945 100%
(1)The year of lease expiration is pursuant to contract terms.
(2)As of September 30, 2020,2021, we have six net lease properties with an annual minimum rent of $536$214 classified as held for sale.
As of September 30, 2020,2021, shown below is the list of our top ten states based on annualized minimum rent where our net lease properties were located. No other state represents more than 3% of our net lease annual minimum rents.
StateStateSquare FeetAnnualized Minimum RentPercent of Total Annualized Minimum RentStateSquare FeetAnnualized Minimum RentPercent of Total Annualized Minimum Rent
TexasTexas1,205,393 $32,139 8.7%Texas1,205,393 $32,291 8.7%
OhioOhio1,302,273 26,439 7.1%
IllinoisIllinois1,019,885 26,147 7.1%Illinois1,016,187 26,103 7.0%
Ohio1,302,273 25,303 6.8%
CaliforniaCalifornia399,045 21,758 5.9%California399,045 21,837 5.9%
GeorgiaGeorgia597,248 19,230 5.2%Georgia597,248 20,178 5.4%
FloridaFlorida538,130 16,114 4.3%
ArizonaArizona476,651 16,847 4.5%
IndianaIndiana637,239 18,035 4.9%Indiana606,839 16,994 4.6%
PennsylvaniaPennsylvania639,519 17,773 4.8%Pennsylvania580,091 15,633 4.2%
Arizona476,651 17,002 4.6%
Florida538,130 16,013 4.3%
New Mexico246,478 10,994 3.0%
NevadaNevada190,262 9,618 2.6%
OtherOther6,620,617 165,409 44.7%Other6,662,537 168,891 45.7%
13,682,478 $369,803 100.0%13,574,656 $370,945 100.0%
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Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., TA and Sonesta and others affiliated with them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, president and chief executive officer of RMR Inc., an officer and employee of RMR LLC, the chair of the board of directors and a managing director of TA, a director of Sonesta and, with a person related to him, is a majority owner of Sonesta; John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC and a director of Sonesta; and our Secretary also serves as a managing director and executive officer of RMR Inc. and a director of Sonesta. We also have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and which may have trustees, directors and officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies. For example: TA, is our former subsidiary and our largest tenant, and Sonesta, is one of our hotel managers and we own an approximate 34% equity interest in Sonesta.
them. For further information about these and other such relationships and related person transactions, see Notes 6,5, 8 and 9 and 10 toto our Notes to condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 20192020 Annual Report, our definitive Proxy Statement for our 20202021 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, see the section captioned “Risk Factors” ofin our 20192020 Annual Report and in this Quarterly Report on Form 10-Q for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with TA and Sonesta, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
Non-GAAP Financial Measures
We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of income.comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs.
Funds From Operations and Normalized Funds From Operations
We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the itemitems shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.below. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintainsatisfy our qualification for taxation as a REIT distribution requirements, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.
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Our calculations of FFO and Normalized FFO for the three and nine months ended September 30, 20202021 and 20192020 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Net loss$(59,714)$(102,642)$(345,814)$(173,641)
Add (Less):Depreciation and amortization expense124,163 122,204 370,208 377,557 
Loss on asset impairment (1)
— 10,248 2,110 55,502 
(Gain) loss on sale of real estate, net (2)
(94)(109)(10,934)9,655 
Unrealized gains on equity securities, net (3)
(24,348)(5,606)(20,367)(4,409)
Adjustments to reflect our share of FFO attributable to an investee (4)
369 (900)1,868 (461)
FFO40,376 23,195 (2,929)264,203 
Add (less):
Loss on early extinguishment of debt (5)
— — — 6,970 
Gain on insurance settlement, net of tax (6)
— — — (46,736)
Adjustments to reflect our share of Normalized FFO attributable to an investee (4)
256 — 1,619 — 
Transaction related costs (7)
3,149 — 28,934 — 
Normalized FFO$43,781 $23,195 $27,624 $224,437 
Weighted average shares outstanding (basic and diluted) (8)
164,590 164,435 164,532 164,397 
Basic and diluted per common share amounts:
Net loss$(0.36)$(0.62)$(2.10)$(1.06)
FFO$0.25 $0.14 $(0.02)$1.61 
Normalized FFO$0.27 $0.14 $0.17 $1.37 
Distributions declared per share$0.01 $0.01 $0.03 $0.56 
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
Net income (loss)$(102,642)$40,074 $(173,641)$274,643 
Add (Less):Depreciation and amortization expense122,204 103,160 377,557 301,721 
(Gain) loss on sale of real estate (1)
(109)— 9,655 (159,535)
Loss on asset impairment (2)
10,248 — 55,502 — 
Unrealized (gains) and losses on equity securities, net (3)
(5,606)3,950 (4,409)43,761 
Adjustments to reflect the entity's share of FFO attributable to an investee (4)
(900)— (461)— 
FFO23,195 147,184 264,203 460,590 
Add (less):
Loss on early extinguishment of debt (5)
— 8,451 6,970 8,451 
Gain on insurance settlement, net of tax (6)
— — (46,736)— 
Normalized FFO$23,195 $155,635 $224,437 $469,041 
Weighted average shares outstanding (basic)164,435 164,321 164,397 164,294 
Weighted average shares outstanding (diluted) (7)
164,435 164,348 164,397 164,332 
Basic and diluted per common share amounts:
Net income (loss)$(0.62)$0.24 $(1.06)$1.67 
FFO$0.14 $0.90 $1.61 $2.80 
Normalized FFO$0.14 $0.95 $1.37 $2.85 
Distributions declared per share$0.01 $0.54 $0.56 $1.61 

(1)We recorded a $109 net gain on sale of real estate during the three months ended September 30, 2020 in connection with the sales of five net lease properties and a $9,655 net loss on sale of 15 net lease properties during the nine months ended September 30, 2020. We recorded a $159,535 gain on sale of real estate during the three months ended March 31, 2019 in connection with the sales of 20 travel centers.
(2)We recorded a $10,248 loss on asset impairment during the three months ended September 30, 2020 to reduce the carrying value of one hotel and two net lease properties to their estimated fair value.value less costs to sell. We recorded a $2,110 loss on asset impairment during the nine months ended September 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell and a $55,502 loss on asset impairment during the nine months ended September 30, 2020 to reduce the carrying value of 18 hotel properties and eight net lease properties to their estimated fair value.value less costs to sell.
(2)We recorded a $94 net gain on sale of real estate during the three months ended September 30, 2021 in connection with the sale of two net lease properties. We recorded a $109 net gain on sale of real estate during the three months ended September 30, 2020 in connection with the sale of five net lease properties. We recorded a $10,934 net gain on sale of real estate during the nine months ended September 30, 2021 in connection with the sale of six hotels and five net lease properties and recorded a net loss on sale of real estate of $9,655 during the nine months ended September 30, 2020 in connection with the sale of 15 net lease properties.
(3)Unrealized gains and losses on equity securities, net representrepresents the adjustment required to adjust the carrying value of our former investment in RMR Inc. and our investment inshares of TA common sharesstock to theirits fair values as of the end of the period. We sold our shares of RMR Inc. on July 1, 2019.value.
(4)Represents adjustments to reflect our proportionate share of FFO and normalized FFO related to our equity investment in Sonesta.
(5)We recorded a $6,970 loss on early extinguishment of debt, during the nine months ended September 30, 2020, related to ourthe repurchase of $350,000 principal amountcertain of our $400,000 of 4.25% senior notes due 2021 for an aggregate purchase price of $355,971, excluding accrued interest. We recorded a $8,451 loss on 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 acquisition of a net lease portfolio.notes.
(6)We recorded a $62,386 gain on insurance settlement, during the nine months ended September 30, 2020, for insurance proceeds received for itsour then leased hotel in San Juan, PR related to Hurricane Maria. Under GAAP, we were required to increase the building basis of our San Juanthis hotel for the amount of the insurance proceeds. We also recorded a $15,650 deferred tax liability as a result of the book value to tax basis difference related to this accounting induring the nine months ended September 30, 2020.
(7)Transaction related costs for the three months ended JuneSeptember 30, 2020.2021 of $3,149 are primarily related to legal costs related to our arbitration proceeding with Marriott. Transaction related costs for the nine months ended September 30, 2021 included $19,971 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the period, $5,263 of legal costs related to our arbitration proceeding with Marriott and $3,700 of working capital we previously funded under our agreement with Hyatt as a result of the amount no longer expected to be recoverable.
(7)(8)Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards.awards, if any.
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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, 2019.2020. 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, 2020,2021, our outstanding publicly tradable debt consisted of 13 issues of fixed rate, senior notes:
Principal BalanceAnnual Interest RateAnnual Interest ExpenseMaturityInterest Payments Due
$50,000 4.250 %$2,125 2021Semi-Annually
500,000 5.000 %25,000 2022Semi-Annually
500,000 4.500 %22,500 2023Semi-Annually
350,000 4.650 %16,275 2024Semi-Annually
825,000 4.350 %35,888 2024Semi-Annually
350,000 4.500 %15,750 2025Semi-Annually
800,000 7.500 %60,000 2025Semi-Annually
350,000 5.250 %18,375 2026Semi-Annually
450,000 4.750 %21,375 2026Semi-Annually
400,000 4.950 %19,800 2027Semi-Annually
400,000 3.950 %15,800 2028Semi-Annually
425,000 4.950 %21,038 2029Semi-Annually
400,000 4.375 %17,500 2030Semi-Annually
$5,800,000 $291,426 

Principal BalanceAnnual Interest
Rate
Annual Interest
Expense
MaturityInterest Payments Due
$500,000 5.000 %$25,000 2022Semi-Annually
500,000 4.500 %22,500 2023Semi-Annually
350,000 4.650 %16,275 2024Semi-Annually
825,000 4.350 %35,888 2024Semi-Annually
350,000 4.500 %15,750 2025Semi-Annually
800,000 7.500 %60,000 2025Semi-Annually
350,000 5.250 %18,375 2026Semi-Annually
450,000 4.750 %21,375 2026Semi-Annually
400,000 4.950 %19,800 2027Semi-Annually
450,000 5.500 %24,750 2027Semi-Annually
400,000 3.950 %15,800 2028Semi-Annually
425,000 4.950 %21,038 2029Semi-Annually
400,000 4.375 %17,500 2030Semi-Annually
$6,200,000 $314,051 

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 $58,000.$62,000. 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, 20202021 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 $252,822.$246,775.

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.
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Floating Rate Debt
At September 30, 2020,2021, our floating rate debt consisted of $80,086$1,000,000 outstanding under our $1,000,000 revolving credit facility and our $400,000 term loan.facility. The 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 extend the stated maturity date of the facility forby two additional six-monthsix month periods. 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. As of September 30, 2020, 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 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 maturity date of our term loan was July 15, 2023; however, we repaid the term loan on November 5, 2020.
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, 2020:2021:
Impact of Increase in Interest RatesImpact of Increase in Interest Rates
Interest Rate
Per Year (1)
Outstanding
Debt
Total Interest
Expense Per Year
Annual Per
Share Impact (2)
Interest Rate
Per Year (1)
Outstanding
Debt
Total Interest
Expense Per Year
Annual Per
Share Impact (2)
At September 30, 20202.72 %$480,086 $13,058 $0.08 
At September 30, 2021At September 30, 20212.85 %$1,000,000 $28,500 $0.17 
One percentage point increaseOne percentage point increase3.72 %$480,086 $17,859 $0.11 One percentage point increase3.85 %$1,000,000 $38,500 $0.23 
(1)Weighted average based on the interest rates and the respective outstanding borrowings as of September 30, 2020.2021.
(2)Based on diluted weighted average common shares outstanding for the ninethree months ended September 30, 2020.
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, 2020 if we were fully drawn on our revolving credit facility and our $400,000 term loan remained outstanding:
Impact of Increase in Interest Rates
Interest Rate
Per Year (1)
Outstanding
Debt
Total Interest
Expense Per Year
Annual Per
Share Impact (2)
At September 30, 20202.61 %$1,400,000 $36,540 $0.22 
One percentage point increase3.61 %$1,400,000 $50,540 $0.31 
(1)Weighted average based on the interest rates and the respective outstanding borrowings (assuming fully drawn) as of September 30, 2020.
(2)Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2020.2021.
The foregoing tables showtable shows the impact of an immediate increasechange in floating interest rates as of September 30, 2020.2021. If interest rates were to increasechange 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 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.for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023. We are required to pay interest on borrowings under our credit facility 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, as a result of any phase out of LIBOR, the determination of interest rates 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.
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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, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Warning Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever we use words such as “believe,” “expect”,“expect,” “anticipate,” “intend,” “plan,” “estimate,” “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 Quarterly Report on Form 10-Q relate to various aspects of our business, including:
The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our operatorsmanagers and tenants, and on our and their ability to operate throughout the pandemic and its aftermath,
The implications of our termination of our IHG and Marriott agreements and our expectationsOur expectation about the ability of Sonesta to operate the hotels that have been or may be transferredtransitioned and rebranded to it, from Wyndham, IHG and Marriott,
Our expectations about our ability and the ability of our operators and tenants to operate throughout the COVID-19 pandemic and withstand the resulting economic downturn,
The likelihood and extent to which our operatorsmanagers and tenants will be negatively impacted by the COVID-19 pandemic and its aftermath and their abilities and willingness to pay the contractual amounts of returns, rents or other obligations due to us,
Our ability to maintain sufficient liquidity during the duration of the COVID-19 pandemic and any resulting economic downturn,conditions,
If and when hotel business will return to historical pre-pandemic levels,
Potential defaults on, or non-renewal of, leases by our tenants,
•     Decreased rental rates or increased vacancies,
•     Our sales and acquisitions of properties,
•     Our policies and plans regarding investments, financings and dispositions,
•     Our ability to pay interest on and principal of our debt,
Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,
•     Our ability to raise or appropriately balance the use of debt or equity capital,
•     Our intent to make improvements to certain of our properties, and the success of our hotel renovations,
•     Our ability to engage and retain qualified managers and tenants for our hotels and net lease properties on satisfactory terms,
•     Our ability to diversify our sources of rents and returns that improve the security of our cash flows,
•     The future availability of borrowings under our revolving credit facility,
•     Our credit ratings,
•     Our expectation that we benefit from our relationships with RMR LLC, Sonesta and Sonesta,
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TA,
•     Our qualification for taxation as a REIT,
•     Changes in federal or state tax laws, and
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•     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, including the COVID-19 pandemic and theany resulting economic downturn,conditions, and the capital markets on us and our operatorsmanagers and tenants,
Competition within the real estate, hotel, transportation and travel center and other industries in which our managers and tenants operate, particularly in those markets in which our properties are located,
Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
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,
Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmademan-made or natural disasters beyond our control, and
Actual and potential conflicts of interest with our related parties, including our Managing Trustees, TA, Sonesta, RMR LLC and others affiliated with them.
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 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,
We fully utilizedSonesta operated 261 of our 304 hotels as of September 30, 2021, many of which were transitioned to Sonesta over the security deposit we held from IHG and IHG has defaulted on its payments to us. We fully utilized the security deposit we held and exhausted the $30.0 million limited guarantee to cover shortfalls in hotel cash flows available to pay the minimum returns due to us under the Marriott agreement. Under the Marriott agreement, if the security deposit and guaranty have been depleted, Marriott is required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination. Marriott has not funded any of the required shortfalls in our minimum returnspast year, and we have terminated our Marriott agreement effective January 31, 2021. We expect to rebrandtransitioned the branding and management of one additional hotel to Sonesta 102 of the 103 hotels under the IHG agreement and the 98 hotels, to the extent not sold, under the Marriott agreement.on November 1, 2021. Transitioning hotels to another operator is disruptive to theirthe hotels’ operations and requires significant capital investments,
We expect Sonesta to operate 257 of our 329 hotels, which constituted approximately 47.8% of our total historical real estate investments as of September 30, 2020, after we rebrand certain of our Wyndham, Marriott and IHG hotels to Sonesta in the fourth quarter of 2020 and the first quarter of 2021. Sonesta is a small privately held company with less resources and scale compared to Wyndham, IHG and Marriott.investments. If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, our income from these properties may be adversely affected. There can be no assurance that Sonesta can operate the hotels rebranded from Wyndham, IHG and Marriott as effectively or for returns at levels that could otherwise be achieved by Wyndham, IHG or Marriott.other large well known hotel companies. Further, if we were required to replace Sonesta, we could experience significant disruptions in operations at the applicable properties, which could reduce our income and cash flows from, and the value of, those properties. We have no guarantee or security deposit under our Sonesta agreements.agreement. Accordingly, the returns we receive from our hotels managed under our Sonesta agreement are dependent upon the financial results of those hotel operations and we may continue to receive amounts from Sonesta that are less than the contractual minimum returns stated in our agreements with Sonesta agreement or we may be requested to fund operating losses for our Sonesta hotels. Further, we own aan approximately 34% ownership interest in Sonesta. If Sonesta experiences losses, or requires additional capital, Sonesta may request we fund our share through the contribution of additional capital.capital and if we do not fund those contributions, our equity interest in Sonesta will be diluted if Sonesta obtains such contributions from other shareholders,

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We cannot be sure of the future financial performance of our properties, and whether such performance will cover our minimum returns and rents, or regarding our managers’, tenants’ or guarantors’ future actions or their abilities or willingness to pay minimum returns and rentscontracted amounts owed to us. If other operators or guarantors do not honor their obligations, we may seek to terminate our arrangements with them or other actions to enforce our rights,
Statements about improving trends experienced during the course of the 2020 third quarterRecent improvements in the level of requests for rent deferments or other relief and improving hotel occupancies may imply that the positive trend may continue. However, COVID-19 infections have recently increased in large parts of the United States and the U.S. economy is experiencing continued challenges. These positive trends could reverse and further deteriorate as a result,
We have recently renovated certain hotels and are currently renovating additional hotels. 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 resultslodging demand may not increasebe sustained, may stall 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,could decline,
If general economic activity in the country 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,
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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, including as a result of the current economic downturn in response to the COVID-19 pandemic, 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,
Cash flows generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Our tenants’ failures to successfully operate their businesses could materially and adversely affect 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 believe that our portfolio agreements include diverse groups of properties and that this diversity may improve operating results that might be realized from a more concentrated group of properties. Our portfolio agreementsHowever, our operator concentration with respect to our hotel operations has recently increased as a result of our transitioning of a majority of our hotels to Sonesta management, and our travel center properties continue to be concentrated with TA. As a result, our operating results may not increase the security of our cash flows or increase the likelihood our agreements will be renewed as we expect,improve,
We were inCurrent market conditions may cause the process of marketing certain hotels for sale in orderselling properties to reduce our leverage. Current market conditions have forced uscontinue to suspend efforts to sell certain of these properties.take longer than previously expected. We may not complete the sales of any additional hotelsproperties we currently plan to sell, and we may determine to sell fewer additional or other assets than those we may target for sale.properties. 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,
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At September 30, 2020,Contingencies in our pending sale agreements may not be satisfied and any expected 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,
As of November 3, 2021, we had $47,847approximately $937.0 million of cash andor cash equivalents, $919,914 available under our $1,000,000 revolving credit facility, guarantees covering some of our minimum returns and rents and executed on $74,735 of property sales and are under agreement to sell additional properties for an aggregate of $218,800. These statementsequivalents. This statement may imply that we have sufficient working capital and liquidity to meet our obligations for the next twelve months. We used $400,000 of the availability underThe amounts we receive from our revolving credit facilityoperators may be insufficient to repayoperate our outstanding term loan on November 5, 2020.business profitably. Certain tenants have requested and we have granted certain rent relief and these requests could increase. In addition, 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 agreedmay be required to provide,fund hotel operating losses and working capital for our hotels. Further, our properties require significant funding for capital improvements renovations and other matters. Accordingly, we may not have sufficient working capital or liquidity,
Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. The ratio of income available for debt service to debt service was below the 1.5x requirement under our public debt covenants as of September 30, 2021. We are not permitted under our debt agreements to incur additional debt while this ratio is below 1.5x. As a precautionary measure, we have fully drawn our $1.0 billion credit facility to maintain our financial flexibility. Our ability to incur debt may be limited for an extended period of time. We cannot be certain how long our ratio of income available for debt service to debt service may remain below 1.5x. We may not have any immediately available borrowing capacity to meet any funding needs beyond our cash on hand if our operating results and financial condition are significantly and adversely impacted by current economic conditions or otherwise. If we cannot incur additional debt, we may be forced to raise additional sources of capital or take other measures to maintain adequate liquidity and we may not succeed in raising any capital we may need,
We expect the borrowings under our revolving credit facility to strengthen our financial position; however, we may not obtain the financial flexibility we expect due to the ongoing COVID-19 pandemic or for other reasons. We can provide no assurance regarding the duration and severity of the economic conditions resulting from the COVID-19 pandemic and its impact on us and our operators,
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We may be unable to repay our debt obligations when they become due,due. Also, our $1,000,000 revolving credit facility matures on July 15, 2022 and we may not be able to meet the conditions required to exercise the extension option available to us under the agreement or be able to refinance the balance with new debt. We may need to seek additional waivers or amendments with our lenders and there is no assurance we will be granted such relief,
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, including due to the COVID-19 pandemic and the resulting economic downturn.conditions. If challenging market conditions including due to the COVID-19 pandemic and the resulting economic downturn, last for a long period or worsen, our operatorsmanagers and tenants may experience liquidity constraints and as a result may be unable or unwilling to pay returns or rents to us and our ability to operate our business effectively may be challenged,
Continued availabilityWe currently expect to fund $30 million of borrowings under our revolving credit facility is subject to our satisfying certain financial covenantscapital expenditures during the last three months of 2021. The cost of capital projects may be greater than we anticipate and other credit facility conditions. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, weat our hotels may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. We expect the ratiodecline as a result of income available from debthaving rooms out of service to debt service coverage could fall below the 1.5x requirement under our public debt covenants in the first quarter of 2021. We will not be allowed to incur additional debt while this ratio is below 1.5x.complete such improvements,
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 premiums used to determine the interest rate and 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,
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 and RMR LLC have continuing 20 year 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, and
We believe that our relationships with our related parties, including RMR LLC, RMR Inc., TA, 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.materialize, and
We are party to arbitration proceedings with Marriott relating to our termination of our management agreements with them. The results of arbitration proceedings are difficult to predict and we can provide no assurances regarding such results. Even if we are successful in such proceedings, the pendency and conduct of such proceedings may be expensive and distracting to our management, and could be disruptive to our operations.
Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as pandemics, including the COVID-19 pandemic, acts of terrorism, natural disasters, climate change, 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 elsewhere in this Quarterly Report on Form 10-Q, and in our 20192020 Annual Report or in our other filings with the SEC, 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 the SEC are available on the SEC’s website at www.sec.gov.
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.
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Statement Concerning Limited Liability
The Amended and Restated Declaration of Trust establishing Service 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 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.
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Part II Other Information
Item 1A. Risk Factors
Our business faces many risks, a number of which are described under the caption “Risk Factors”There have been no material changes to risk factors from those we previously disclosed in our 20192020 Annual Report. The COVID-19 pandemic may subject us to additional risks that are described below. The risks described in our 2019 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 2019 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 2019 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.
Our business, operations, financial results and liquidity have been materially and adversely impacted by the COVID-19 pandemic, and it is not known what the duration of this pandemic will be or what its ultimate adverse impact on us and our business will be, but we expect it will be substantial.
COVID-19 has been declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. The COVID-19 pandemic has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic recession.
These conditions have materially and adversely impacted our business, operations, financial results and liquidity. In particular, a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a decline in the business and leisure travel and entertainment industries, including, but not limited to, (i) restrictions on travel and public gatherings imposed by governmental entities and employers, (ii) the closure of hotels, restaurants and entertainment venues, (iii) the postponement or cancellation of industry conventions and conferences, music and arts festivals, sporting events and other large public gatherings, (iv) the closure of amusement parks, museums and other tourist attractions, (v) the closure of colleges and universities, and (vi) negative public perceptions of travel and public gatherings in light of the perceived risks associated with the COVID-19 pandemic. The reduced economic activity resulting from these factors has severely and negatively impacted our hotel operations and our hotels have experienced a large decline in occupancy and revenues.
In addition, some of our tenants at our net lease retail properties have had to close their businesses, and have experienced substantial declines in their businesses. Some of these tenants have sought rent relief from us and we expect these closures, declines and requests to continue or increase in the future. The travel centers operated by TA primarily provide goods and services to the trucking industry, and demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S. economy. When the U.S. economy declines, demand for goods moved by trucks declines, and in turn demand for the products and services provided at our travel centers typically declines. Although TA has been recognized as providing services to essential businesses by various governmental authorities, there can be no assurance that such a designation will continue and that, if it does, it will enable TA to avoid adverse effects to its operations and business. TA has experienced declines in its business activity. If current economic conditions continue for a prolonged period or worsen, TA’s business may be materially and adversely affected by such continued and increasing decline in economic activities and movement of goods across the United States.
In addition, quarantines, temporary closures of businesses, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of our managers and tenants to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our operating results.
We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact, but we expect it will be substantial. Potential consequences of the current unprecedented measures taken in response to the spread of COVID-19 and current market disruptions and volatility affecting us include, but are not limited to:
the current low market price of our common shares may continue for an indefinite period and could decline further;
possible significant declines in the value of our properties;
our inability to accurately or reliably value our portfolio;
our inability to comply with financial covenants that could result in our defaulting under our debt agreements;
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our maintaining the current reduced rate of distributions on our common shares for an extended period of time or suspending our payment of distributions entirely;
our failure to pay interest and principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility;
our inability to access debt and equity capital on attractive terms, or at all;
further downgrades of our credit ratings by nationally recognized credit rating agencies;
increased risk of default or bankruptcy of our managers or tenants;
increased risk of our managers or tenants being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern and to pay rent and returns to us;
our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions and, as a result, our inability to reduce our leverage;
our inability to make improvements to our properties due to a construction moratorium or decrease in available construction workers or construction activity, including required inspectors and governmental personnel for permitting and other requirements, and due to our need to maintain our liquidity;
our managers’ and tenants’ inability to operate our businesses if the health of their respective management personnel and other employees is affected, particularly if a significant number of individuals are negatively impacted; and
reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our managers and tenants and the demand for our hotels, travel centers and retail space.
Further, the extent and strength of any economic recovery after the COVID-19 ends or otherwise, are uncertain and subject to various factors and conditions. Our and our hotel managers’ and retail-based tenants’ businesses, operations and financial positions may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels as compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.
We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, and we continue to assess and explore other actions, but those actions and plans may not be sufficient to avoid continued and potentially increased substantial harm to our business, operations and financial condition.
We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, including:
we have received waivers of compliance with the financial covenants under our credit agreement to ensure we have access to undrawn amounts under such credit facility,
we reduced our quarterly cash distributions on our common shares to $0.01 per share, a savings of $87.2 million per quarter compared to prior distribution levels,
we raised $788.2 million of proceeds from the issuance of 7.5% unsecured senior notes due 2025,
we repurchased $350.0 million principal amount of our $400.0 million of 4.25% senior notes due 2021,
we raised $72.8 million in net proceeds from asset sales and have entered agreements to sell additional properties for a sales price of $218.8 million,
we repaid our $400.0 million term loan using undrawn amounts under our revolving credit facility,
we have prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations,
we have been in regular, frequent contact with our hotel managers to implement cost savings measures to minimize losses and preserve liquidity, including agreeing to the closures of certain hotels, the reduction of hotel operating staff and certain other measures, and
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we have communicated with many of our net lease retail tenants regarding their operation of our properties in the current challenging economic conditions, and we have provided deferrals of approximately $13.4 million of rent owed to us that are now required to be payable in installments beginning later this year.
There can be no assurance that these actions or others that we may take will be successful or that they will enable us to maintain sufficient liquidity and withstand the current economic challenges.
We reduced our quarterly rate of distribution on our common shares to $0.01 per share and future distributions may remain at this level for an indefinite period or be eliminated and the form of payment could change.
Beginning in the second quarter of 2020, we reduced our regular quarterly cash distributions rate on our common shares to $0.01 per share and we expect our quarterly distribution to continue at that rate during the New Waiver Period and possibly thereafter subject to REIT tax requirements. However:
our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;
our making of distributions is subject to compliance with restrictions contained in our credit agreement, including being limited to amounts required to maintain our qualification for taxation as a REIT and $.01 per common share per quarter, and during the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders; and
the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to our FFO and Normalized FFO, 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 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.
For these reasons, among others, our distribution rate may not increase for an indefinite period and could be eliminated.
In order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.
We have exhausted the security deposits and guarantees that our two largest hotel operators have provided to us, which significantly reduces the security of our minimum returns and rents from our hotels, subjects our operating results to potentially significantly increased variability and has given rise to a fundamental altering of our business arrangements with our hotel operators.
We fully utilized the security deposits and exhausted the guarantees provided by IHG and Marriott, which represented 42.7% of our annual minimum returns and rents as of September 30, 2020. As a result the security of our minimum returns from our hotels has been significantly reduced and the variability of our operating results has been significantly increased. If our hotel operators are unwilling or unable to fund our minimum returns and rents, we may have the right to terminate our operating agreements with that operator and change the operator of the hotel. Our agreements with our hotel operators are generally pooled and provide for cross-defaults and termination rights on a portfolio basis. In that case, a default under one operating agreement, and that operator’s unwillingness or inability to fund shortfalls in our minimum returns or rents, may give rise to a termination of the operating arrangements for the entire portfolio of our hotels operated by that operator. As a result, our business arrangements with our hotel operators could fundamentally change and those changes may harm us, our business, our results of operations and financial condition. IHG has defaulted on its payment obligations to us and Marriott has not funded the shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us. We have provided notices of default and termination of our agreements with IHG and Marriott. In addition, we do not know how our other hotel operators may address any shortfalls in our minimum returns or rents, particularly under the current economic conditions.
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Sonesta’s expected management of a majority of our hotel portfolio may negatively impact the security of our returns and our results of operations.
We expect Sonesta to operate 257 of our 329 hotels which constituted approximately 47.8% of our total historical real estate investments as of September 30, 2020, after we rebrand certain of our Wyndham, Marriott and IHG hotels to Sonesta in the fourth quarter of 2020 and the first quarter of 2021. Larger more well-known brands have historically generated business based on brand loyalty, rewards programs, economies of scale and other differentiators that Sonesta may not have. If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, our income from these properties may be adversely affected. There can be no assurance that Sonesta will operate the hotels rebranded from Wyndham, IHG or Marriott as effectively or for returns at levels that could otherwise be achieved by Wyndham, IHG or Marriott. Further, if we were required to replace Sonesta, we could experience significant disruptions in operations at the applicable properties, which could reduce our income and cash flows from, and the value of, those properties. We have no guarantee or security deposit under our Sonesta agreement. Accordingly, we may receive amounts from Sonesta that are less than the contractual minimum returns stated in our agreements with Sonesta or we may be requested to fund losses for our Sonesta hotels. Further, we own a 34% interest in Sonesta. If Sonesta experiences losses, or requires additional capital, Sonesta may request we fund our share through the contribution of additional capital.
Our investment activities, other than maintenance and any urgent capital expenditures at our existing properties, have been significantly curtailed and we expect that to continue for an indefinite period.
We are not actively pursuing acquisitions at this time. We are prioritizing capital spending to conserve cash and liquidity. In addition, the waiver we obtained from our lenders for relief from compliance with certain financial covenants under our credit facility limits our ability to make acquisitions and capital expenditures through the New Waiver Period. As a result, we will be limited in pursuing investments, which may limit our ability to grow and to act upon opportunities we believe would benefit us. Further, to the extent we defer capital expenditures, we may be required to make increased capital expenditures in later periods as a result and some of the expenditures may be greater in scope and amount than they may have been if made sooner.
We expect that the sale of hotels and net lease properties that we previously announced an intention to sell will be delayed and could be changed or abandoned, and if we do not sell certain of those hotels by a certain agreed upon date, the manager of those hotels, or our management agreements with them, may change.
We expect that the sales of substantially all of our hotels and net lease properties that we had previously identified for sale will be delayed until later in 2020 or until 2021 as a result of current market conditions. However, any sales of these hotels or net lease properties may be delayed beyond 2021, they may not occur or, if they do occur, they may be sold at prices less than previously expected and we may realize losses from those hotels. Our ability to sell these hotels or net lease properties, and the sales prices may continue to be affected by the impact of the COVID-19 pandemic, and we may be unable to execute our strategy. In addition, if we do not sell or rebrand certain of these hotels by agreed upon dates, our current managers of those hotels may elect not to continue to manage those hotels or may require changes to our management agreements with them in order to agree to continue managing those hotels. For example, Wyndham currently manages 15 of our hotels and we and Wyndham have agreed to end our relationship. In addition, we and Marriott agreed to sell 33 of our hotels that Marriott currently manages for us by December 31, 2020. We currently have 24 Marriott hotels under agreement to sell. We expect 9 of the 33 Marriott hotels will not be sold and will be rebranded to Sonesta. We have 15 Wyndham hotels under agreement to sell. There can be no assurance we will complete any of these sales. If we do not sell or rebrand these hotels currently managed by Wyndham and Marriott we do not know whether these managers will continue to manage these hotels and, if so, on what terms. In addition, we previously announced our intention to sell 39 Sonesta branded hotels. Based on current market conditions, we expect to retain these 39 hotels for the foreseeable future.
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Many of our tenants and certain of our hotel managers have requested relief from their obligations to pay us rent and returns in response to the current economic conditions resulting from the COVID-19 pandemic and we may receive additional similar requests in the future; we have provided certain limited relief in response to these requests and may determine to grant additional relief in the future if we determine it prudent or appropriate to do so.
The current economic conditions resulting from the COVID-19 pandemic have significantly negatively impacted our tenants’ and hotel managers’ businesses, operations and liquidity. Many of our tenants and certain of our hotel managers have requested relief from their obligations to pay rent and returns due to us. We have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53.4 million of annual minimum rents. Generally these rent deferrals are for one to four months of rent and were payable by the tenants over a 12 to 24 month period beginning in September 2020. As of November 6, 2020, we have deferred an aggregate of $13.4 million of rent. We may receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if our tenants and hotel managers are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents and returns received and we may be unable to find suitable replacement tenants and hotel managers for an extended period or at all and the terms of our agreements with those replacement tenants and hotel managers may not be as favorable to us as the terms of our agreements with our existing tenants and hotel managers.
We may need additional waivers from our lenders in order to avoid defaulting under our credit agreement or public debt agreements and the terms of our current waivers under our credit agreement impose restrictions on our ability to pay distributions, make investments and certain capital improvements and any future waiver may impose similar or additional restrictions.
We have obtained waivers from the lenders under our credit agreement from compliance with its existing financial covenants. These waivers impose restrictions on our ability to pay distributions, other than as currently contemplated or to maintain our qualification for taxation as a REIT, make investments and make capital improvements. We may need to obtain an extension or additional waivers from our lenders or noteholders in the future in order to avoid failing to satisfy certain financial covenants under our debt agreements, but our lenders or noteholders are not required to grant any such waiver and may determine not to do so. If we fail to receive any required waiver, we may be in default under our credit agreement and the lenders could terminate the credit facility and require us to pay our then outstanding borrowings under our credit facility. Any future waiver we may obtain may impose similar or additional restrictions, which may limit our ability to pay or increase distributions to our shareholders, make investments that we believe we should make and could reduce our ability to pursue business opportunities, grow our business and improve our operating results. In addition, continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. We expect the ratio of income available from debt service to debt service coverage could fall below the 1.5x requirement under our public debt covenants in the first quarter of 2021. We will not be allowed to incur additional debt while this ratio is below 1.5x, which could materially and adversely impact our business, operations, financial results and liquidity.
We do not expect to reduce our debt leverage in accordance with our previously contemplated timing and our debt leverage may remain at or above current levels for an indefinite period.
We previously announced an intention to reduce our debt leverage using proceeds from the planned sales of certain of our hotels. As noted elsewhere in this Quarterly Report on Form 10-Q, we expect that the sales of these hotels will be delayed, may not occur or, if they do occur, they may be sold at sales prices lower than previously expected. We expect the delay in these sales will also delay our ability to reduce our debt leverage. Further, if we realize a lower amount of proceeds from any hotel sales than we previously expected, any corresponding reduction in our debt leverage would be similarly reduced. In addition, we may elect to incur additional debt in order to ensure that we have sufficient liquidity to manage our business through the current economic conditions and any extended economic downturn or recession that may result.
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The COVID-19 pandemic may have significant impacts on workplace practices and those changes could be detrimental to our business.
Temporary closures of businesses and stay-at-home orders and the resulting remote working arrangements for nonessential personnel in response to the COVID-19 pandemic may result in long-term changed work practices that could negatively impact us and our business. For example, the increased adoption of and familiarity with remote work practices could result in decreased demand for in person meetings. If that occurred, business travel may decline significantly from levels experienced prior to the outbreak of the COVID-19 pandemic, which could materially and adversely impact our hotels’ operating results and the values of our hotels if we and our hotel managers were not able to offset revenues lost from the decline in business travel. In addition, certain of our retail tenants’ businesses depend on people gathering in close proximity, including movie theaters, restaurants and fitness centers, among others. To the extent that social distancing practices that have been adopted in response to the COVID-19 pandemic become sustained practices, those tenants’ businesses are likely to be materially and adversely impacted, which may reduce their ability to pay us rent, increase the likelihood they will default in paying us rent and likely reduce the value of those properties.
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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, 2020:2021:
Calendar Month
Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 2020$$$
August 2020
September 202038,1567.40
Total38,156$7.40$$
Calendar Month
Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
September 202155,716$10.70$$
Total55,716$10.70$$
(1)These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of certain of our officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.shares and the vesting of those and prior awards of common shares to them. We withheld and purchased these shares at their fair market valuevalues based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Item 5. Other Information
On November 5, 2020, we amended the credit agreement governing our $1.0 billion revolving credit facility and $400 million term loan. The amendment provides for a waiver of the existing financial covenants under our credit agreement through the New Waiver Period, during which, subject to certain conditions, we will continue to have access to undrawn amounts under the credit facility.
As part of the amendment, we repaid in full our $400 million term loan using undrawn amounts under our revolving credit facility.
Pursuant to the amendment, the covenants contained in our credit agreement, including covenants that require us to maintain certain financial ratios, and their related definitions, were modified or waived through the New Waiver Period. The maturity date of the revolving credit facility remains unchanged by the amendment. The amended credit agreement provides that we can continue to access undrawn amounts under our revolving credit facility and that we can continue to repay and reborrow funds available under our revolving credit facility until maturity with no scheduled principal repayment being due until maturity; however, the requirement for us to maintain $125 million of unrestricted cash or undrawn availability under our $1.0 billion revolving credit facility during the New Waiver Period remains. The $1.0 billion maximum amount of our revolving credit facility remained unchanged by the amendment. We may not, during the New Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $2.3 billion on a combined basis in certain circumstances.
The amended credit agreement provides for certain additional restrictions on us during the New Waiver Period. Subject to certain exceptions and without the prior written consent of the lenders, we continue to be generally restricted during the New Waiver Period from incurring additional debt or acquiring additional properties or other investments. Pursuant to the amended credit agreement, our ability to pay cash distributions to our shareholders remains limited during the New Waiver Period to amounts required to maintain our qualification for taxation as a REIT, to avoid the payment of income or excise taxes and to pay a dividend of $0.01 per share per quarter, and our capital expenditures are generally limited during the New Waiver Period to maintenance capital expenditures, contractual obligations, projects in process and certain other permitted amounts. The amended credit agreement also provides that, during the New Waiver Period, any cash proceeds we or our subsidiaries receive from the sale or disposition of any asset, any capital market transaction, any debt refinancing or a COVID-19 government stimulus program must be used first to repay outstanding amounts under the credit agreement, with additional restrictions on the use of any remaining amounts.
In addition, as a result of the amendment, the interest rate payable on borrowings under our revolving credit facility was increased from a rate of LIBOR plus a premium of 205 basis points per annum to a rate of LIBOR plus a premium of 235 basis points per annum, in each case subject to a LIBOR floor of 0.50%, and the facility fee remained unchanged at 25 basis points per annum on the total amount of lending commitments under this facility. The interest rate premium and the facility fee continue to be subject to adjustment based upon changes to our credit ratings.
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In connection with the amendment to our credit agreement, we have pledged certain additional equity interests of subsidiaries owning properties. Following the closing of the amendment, we will provide first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1,837,392 as of September 30, 2020 to secure our obligations under the credit agreement;
Wells Fargo Bank, National Association and the other lenders party to the amended credit agreement, as well as their affiliates, have engaged in, and may in the future engage in, investment banking, commercial banking, advisory and other commercial dealings in the ordinary course of business with us. They have received, and may in the future receive, customary fees and commissions for these engagements.
The foregoing descriptions of the amendment to our credit agreement and the supplement to our pledge agreement are not complete and are subject to and qualified in their entirety by reference to the copies of the third amendment to our credit agreement and supplement to our pledge agreement attached as Exhibits 10.7 and 10.8, respectively, to this Quarterly Report on Form 10-Q and incorporated herein by reference.
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Item 6. Exhibits
Exhibit
Number
Description
3.1 
3.2 
3.3 
4.1 
4.2 
4.3 
4.4 
4.5 
4.6 
4.7 
4.8 
4.9
4.10 
4.114.10 
4.124.11 
4.134.12 
4.144.13 
4.154.14 
4.164.15 
4.174.16 
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Exhibit
Number
Description
4.184.17 
4.194.18 
4.19 
4.20 
4.21 
4.22 
4.23 
4.24 
4.25 
4.26 
4.204.27 
10.1 
10.2
10.3 
10.4 
10.5 
10.6 
10.710.3 
10.8 
22.1 
31.1 
31.2 
32.1 
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LABXBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
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Exhibit
Number
Description
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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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.
SERVICE PROPERTIES TRUST
/s/ John G. Murray
John G. Murray
President and Chief Executive Officer
Dated: November 09, 20204, 2021
/s/ Brian E. Donley
Brian E. Donley
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Dated: November 09, 20204, 2021

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