The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2019 Annual Report. Overview (dollar amounts in thousands, except share amounts and per-room hotel data) We are a REIT organized under the laws of theState of Maryland . As ofJune 30, 2020 , we owned 1,138 properties in 47 states, theDistrict of Columbia ,Canada andPuerto Rico . Impact of COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, theU.S. Health and Human Services Secretary declared a public health emergency inthe United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughoutthe United States and the world. Various governmental and market responses attempting to contain and mitigate the spread of the virus that causes COVID-19 have negatively impacted, and continue to negatively impact, the global economy, including theU.S. economy. As a result, most market observers believe the global economy and theU.S. economy are in a recession. States and municipalities acrossthe United States have been allowing certain businesses to reopen and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that theU.S. economy has increasingly improved since the lowest periods experienced in March andApril 2020 . However, certain areas ofthe United States have experienced increased numbers of COVID-19 infections following the reopenings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infection outbreaks will continue and/or amplify or whether any "second wave" of COVID-19 infections will occur inthe United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business. Our business is focused on lodging and service retail properties, which have been some of the industries most severely and negatively impacted by the effects of the pandemic. These conditions have materially and adversely impacted our business, operations, financial results and liquidity. In particular, a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a decline in the lodging industry, including, but not limited to, (i) restrictions on travel and public gatherings imposed by governmental entities and employers, (ii) the closure of hotels, restaurants and other venues, and (iii) the postponement or cancellation of industry conventions and conferences, and other demand drivers of our hotels, (iv) the closure of amusement parks, museums and other tourist attractions, (v) the closure of colleges and universities, and (vi) negative public perceptions of travel and public gatherings in light of the perceived risks associated with the COVID-19 pandemic. The reduced economic activity resulting from these factors has severely and negatively impacted our operations. Our hotels have experienced a significant decline in occupancy and revenues. We suspended operations at 19 hotels as a result of the COVID-19 pandemic and related declines in business activity (17 full-service hotels and two extended stay hotels) during March andApril 2020 . InJune 2020 , five of the closed hotels resumed operations and, as ofAugust 6, 2020 , 9 of these 19 hotels have resumed operations. Hotel occupancies reached all-time lows during the second quarter of 2020 as a result weak demand resulting from various forms of stay-at-home restrictions being enforced throughoutthe United States due to the COVID-19 pandemic. Occupancy at our hotels was 21.0% inApril 2020 , 26.8% inMay 2020 and 35.5% inJune 2020 . Hotel performance has gradually improved since the lows seen inApril 2020 as travel demand slowly recovered. For the 28 days endedJuly 25, 2020 , occupancy at our hotels was 42.4%. We continue to work with our operators to mitigate the impact on our hotel operations as a result of general economic and industry conditions relating to the COVID-19 pandemic, including efforts to reduce operating expenses such as, but not limited to, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, service contract reductions and eliminations, food service and exercise facilities closures, and reduction and elimination of certain marketing expenditures. We have also agreed to suspend contributions to our FF&E reserves under certain of our agreements. These efforts to reduce operating expenses have been partially offset by additional expenses we and our hotel managers have incurred to change the operations and procedures at our hotels in response to the COVID-19 pandemic. Cleaning protocols, safety standards and other operational considerations have been modified that have resulted in, and which we expect will continue to result in, increased operating expenses and may require additional capital expenditures at our hotels. 25
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As a result of the depressed activity at our hotels and expected losses, several of our operators have requested working capital advances from us to pay operating expenses for our hotels. During the six months endedJune 30, 2020 , we advanced an aggregate of$80,474 of working capital to certain of our hotel operators to cover projected operating losses. We advanced$37,000 to IHG,$30,000 to Marriott,$7,351 to Sonesta,$2,423 to Wyndham and$3,700 to Hyatt. Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain management fees pursuant to the terms of the respective agreements. We may receive additional requests for working capital advances if lodging activity continues to be depressed. OnJuly 23, 2020 , we sent IHG a notice of default and termination of the IHG agreement as a result of non-payment of our minimum returns. For information regarding this default and termination see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Our largest tenant, TA, is current on its rent obligations to us as ofAugust 6, 2020 . The travel centers operated by TA primarily provide goods and services to the trucking industry, and demand for trucking services inthe United States generally reflects the amount of commercial activity in theU.S. economy. When theU.S. economy declines, demand for goods moved by trucks declines, and in turn demand for the products and services provided at our travel centers typically declines. Although TA's services have been designated "essential services" by many public authorities, and as a result, all of our travel centers operated by TA are open and operating, TA has also experienced negative impacts from the COVID-19 pandemic, including closing most of its full service restaurants, and implementing social distancing and other measures at its travel center stores. As a result, TA has experienced declines in its business activity. TA had begun reopening some of its restaurants inMay 2020 as certain states allowed restaurants to reopen. However, as a result of the recent increase in COVID-19 infections in several states, TA is closing or re-closing certain of its restaurants. In addition, some of our other net lease retail tenants have experienced closures and substantial declines in their businesses as a result of the COVID-19 pandemic. Some of these tenants have sought rent relief from us and we expect these closures, declines and requests to continue or increase in the future. During the three months endedJune 30, 2020 , we collected 58.70% of the rents due to us for those months from our other net lease tenants, including 45.6% inApril 2020 , 57.6% inMay 2020 and 74.6% inJune 2020 . We have entered into rent deferral agreements for an aggregate of$11,312 of rent with 80 net lease retail tenants with leases requiring an aggregate of$59,288 of annual minimum rents. DuringJuly 2020 , we collected 80.0% of the rents due to us for the month from our other net lease tenants. Generally these rent deferrals are for one to four months of rent and will be payable by the tenants over a 12 to 24 month period beginning inSeptember 2020 . If the economic downturn continues for a prolonged period, our operators and tenants and their businesses may become increasingly negatively impacted, which may result in our operators and tenants seeking additional assistance from us regarding their obligations owed to us, their being unable or unwilling to pay us returns or rents, their ceasing to pay us returns or rents and their ceasing to continue as going concerns. For information regarding our net lease tenants and our assessment of collectability of outstanding rent amounts, see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including: • our operators and tenants and their ability to withstand the current
economic conditions and continue to pay us returns and rents;
•our operations, liquidity and capital needs and resources; •conducting financial modeling and sensitivity analyses; • actively communicating with our operators and tenants and other key
constituents and stakeholders in order to help assess market conditions,
opportunities, best practices and mitigate risks and potential adverse
impacts; and
• monitoring, with the assistance of counsel and other specialists, possible
government relief funding sources and other programs that may be available
to us or our operators and tenants to enable us and them to operate through the current economic conditions and enhance our operators' and tenants' ability to pay us returns and rents. Despite the circumstances outlined above, we believe that our current financial resources and our expectations as to the future performance of the lodging industry and the industries in which our net lease retail tenants operate will enable us to withstand the COVID-19 pandemic and its aftermath. As ofAugust 6, 2020 , we have: 26
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•
received a limited waiver of compliance with certain financial covenants
under our credit agreement to ensure we have full access to undrawn amounts under such credit facility, subject to minimum liquidity requirements,
• reduced our quarterly cash distributions on our common shares to
share; a savings of
levels,
• raised
due 2025,
• repurchased
notes due 2021, • raised$62,858 in net proceeds from asset sales and have entered
agreements to sell additional properties for an aggregate sales price of
• no debt maturities during the remainder of 2020 and the next debt maturity
being$50,000 of our senior notes due inFebruary 2021 , and • prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations. We do not have any employees and the personnel and various services we require to operate our business are provided to us byRMR LLC pursuant to our business and property management agreements withRMR 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 ensureRMR LLC employees remain safe and able to support us and other companies managed byRMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support. There are extensive uncertainties surrounding the COVID-19 pandemic. These uncertainties include among others: • the duration and severity of the negative economic impact;
• the strength and sustainability of any economic recovery;
• the timing and process for how federal, state and local governments and
other market participants may oversee and conduct the return of economic
activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in
order to foster a return of increased economic activity in the United
States; and
• whether, following a recommencing of more normal levels of economic
activities,
of COVID-19 infection outbreaks and, if so, the responses of governments,
businesses and the general public to those events.
As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our operations and our operators and other stakeholders' businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q. Acquisitions and Dispositions OnSeptember 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 endedDecember 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 . 27
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We have entered agreements to sell eight Marriott branded hotels with 834 rooms in four states with a net carrying value of$34,956 for an aggregate sales price of$45,250 . We have entered an agreement to sell one Wyndham branded hotel with 344 rooms with a net carrying value of$3,365 for a sales price of$3,500 . We expect these sales to be completed in the fourth quarter of 2020. We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness. The amount of minimum returns due from Marriott will be reduced by the amount allocated to the Marriott hotels, which was$7,935 as ofJune 30, 2020 . The sales of these hotels are subject to various contingencies; accordingly, we cannot provide any assurance that we will sell any of these nine hotels. OnFebruary 27, 2020 , we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta modified our then existing business arrangements. See Note 6 for further information regarding our Sonesta agreement in Part I, Item 1 of this Quarterly Report on Form 10-Q. Management agreements and leases. AtJune 30, 2020 , we owned 329 hotels operated under six agreements. We leased 328 of these hotels to our wholly owned TRSs that are managed by hotel operating companies, and the one remaining hotel is leased to a hotel operating company. We own 809 service-oriented properties with 180 tenants subject to "triple net" leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. Our condensed consolidated statements of comprehensive income include hotel operating revenues and hotel operating expenses from our managed hotels and rental income and other operating expenses from our leased hotel and net lease properties. Many of our operating agreements and net leases contain security features, such as guarantees and security deposits, which are intended to protect minimum returns and rents due to us in accordance with our agreements regardless of property performance. However, the effectiveness of various security features to provide us uninterrupted receipt of minimum returns and rents is not assured, especially if economic conditions generally decline for a prolonged period. Also, certain of the guarantees that we hold are limited in amount and duration and do not provide for payment of the entire amount of the applicable minimum returns. During the three and six months endedJune 30, 2020 , we utilized$37,862 and$100,170 , respectively, of hotel operator security deposits, and during the three and six months endedJune 30, 2020 , we utilized$46,686 and$54,883 , respectively, of the guarantees provided by certain of our hotel operators under their respective operating agreements. As ofJune 30, 2020 , we had$8,992 of security deposits and$35,988 of guarantees available to cover shortfalls in hotel cash flows available to pay the minimum returns due to us from certain hotel operators. As ofAugust 6, 2020 , we have fully utilized the remaining security deposit we held from IHG and fully utilized the security deposit we held and exhausted the$30,000 limited guarantee under our Marriott agreement. Based on our current estimates, we project we will exhaust the guaranty from Hyatt in the fourth quarter of 2020. If one or more of our hotel operators are unwilling or unable to fund our minimum returns and rents, we may have the right to terminate our agreements with those operators and change the operator of those hotels.Hotel Portfolio Comparable hotels data. We present revenue per available room, or RevPAR, average daily rate, or ADR, and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. We generally define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared. For the three months endedJune 30, 2020 and 2019, we excluded 23 hotels from our comparable results. Two of these hotels were not owned for the entire period, two were closed for major renovations and 19 suspended operations as a result of the COVID-19 pandemic during part of the periods presented. For the six months endedJune 30, 2020 and 2019, we excluded 25 hotels from our comparable results. Three of these hotels were not owned for the entire period, three were closed for major renovations and 19 suspended operations as a result of the COVID-19 pandemic during part of the periods presented. Hotel operations. During the three and six months endedJune 30, 2020 , theU.S. hotel industry generally realized decreases in ADR and RevPAR and declines in occupancy compared to the same periods in 2019. During the three and six months endedJune 30, 2020 , our 306 comparable hotels that we owned continuously sinceJanuary 1, 2019 produced aggregate year over year decreases in ADR, occupancy and RevPAR. We believe these results are primarily due to the market disruption resulting from the COVID-19 pandemic. For the three months endedJune 30, 2020 compared to the same period in 2019 for our 306 comparable hotels: ADR decreased 31.5% to$83.47 ; occupancy decreased 46.0 percentage points to 31.2%; and RevPAR decreased 72.3% to$26.04 . For the three months endedJune 30, 2020 compared to the same period in 2019 for all our 329 hotels: ADR decreased 36.4% to$84.34 ; occupancy decreased 49.4 percentage points to 27.8%; and RevPAR decreased 77.1% to$23.45 . 28
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For the six months endedJune 30, 2020 compared to the same period in 2019 for our 304 comparable hotels: ADR decreased 14.1% to$103.85 ; occupancy decreased 27.8 percentage points to 44.4%; and RevPAR decreased 47.2% to$46.11 . For the six months endedJune 30, 2020 compared to the same period in 2019 for all our 329 hotels: ADR decreased 16.1% to$110.24 ; occupancy decreased 30.4 percentage points to 41.9%; and RevPAR decreased 51.4% to$46.19 . Net Lease Portfolio. As ofJune 30, 2020 , we owned 809 net lease service-oriented retail properties with 13.7 million square feet and annual minimum rent of$369,423 , which represented approximately 38% of our total annual minimum returns and rents. Our net lease portfolio was 99% occupied as ofJune 30, 2020 by 180 tenants with a weighted (by annual minimum rent) lease term of 11.1 years, operating under 129 brands in 22 distinct industries. TA is our largest tenant. As ofJune 30, 2020 , we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of$246,110 which represents 25.6% of our consolidated annual minimum rents and returns. Additional details of our hotel operating agreements and our net lease agreements are set forth in Notes 6 and 10 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the table and notes thereto on pages 45 through 47 below. 29
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Results of Operations (dollar amounts in thousands, except share amounts) Three Months EndedJune 30, 2020 Compared to the Three Months EndedJune 30, 2019 For the Three Months Ended June 30, Increase % Increase 2020 2019 (Decrease) (Decrease) Revenues: Hotel operating revenues$ 117,356 $ 541,215 $ (423,859 ) (78.3 )% Rental income - hotels 1,992 5,074 (3,082 ) (60.7 )% Rental income - net lease portfolio 95,592 63,143 32,449 51.4 % Total rental income 97,584 68,217 29,367 43.0 % FF&E reserve income - 1,130 (1,130 ) (100.0 )% Expenses: Hotel operating expenses 46,957 380,431 (333,474 ) (87.7 )% Other operating expenses 3,565 1,272 2,293 180.3 % Depreciation and amortization - hotels 67,898 66,900 998 1.5 % Depreciation and amortization - net lease portfolio 59,529 32,296 27,233 84.3 % Total depreciation and amortization 127,427 99,196 28,231 28.5 % General and administrative 11,302 12,207 (905 ) (7.4 )% Loss on asset impairment 28,514 - 28,514 n/m Other operating income: Loss on sale of real estate (2,853 ) - (2,853 ) n/m Gain on insurance settlement 62,386 - 62,386 n/m Dividend income - 876 (876 ) (100.0 )% Unrealized gains (losses) on equity securities, net 3,848 (60,788 ) 64,636 (106.3 )% Interest income 15 449 (434 ) (96.7 )% Interest expense (72,072 ) (49,601 ) (22,471 ) 45.3 % Loss on early extinguishment of debt (6,970 ) - (6,970 ) n/m Income (loss) before income taxes and equity earnings of an investee (18,471 ) 8,392 (26,863 ) (320.1 )% Income tax benefit (expense) (16,660 ) 260 (16,920 ) (6,507.7 )% Equity in earnings (losses) of an investee (2,218 ) 130 (2,348 ) (1,806.2 )% Net income (loss)$ (37,349 ) $ 8,782 $ (46,131 ) (525.3 )% Weighted average shares outstanding (basic) 164,382 164,284 98 0.1 % Weighted average shares outstanding (diluted) 164,382 164,326
56 n/m
Net income (loss) per common share (basic and diluted)$ (0.23 ) $ 0.05 $
(0.28 ) (560.0 )%
References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months endedJune 30, 2020 , compared to the three months endedJune 30, 2019 . Hotel operating revenues. The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies principally as a result of the COVID-19 pandemic ($424,171 ), partially offset by the conversion of one hotel from a leased to a managed property ($312 ). Additional operating statistics of our hotels are included in the table on page 47. Rental income - hotels. The decrease in rental income - hotels is primarily the result of the conversion of one hotel from a leased to a managed property during the 2020 period ($3,082 ). Rental income - hotels for the 2019 period includes$81 of adjustments to record rent on a straight-line basis. There were no such adjustments to rental income - hotels for the 2020 period. 30
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Rental income - net lease portfolio. The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($32,516 ). We increased rental income by$875 and reduced rental income by$3,271 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis. FF&E reserve income. FF&E reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us to accumulate funds for future capital expenditures. The terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels. We do not report the amounts, if any, which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income. The decrease in FF&E reserve income is the result of the suspension of FF&E reserve contributions for our one leased hotel and the conversion of one hotel from a leased hotel to a managed property in the 2020 period. Hotel operating expenses. The decrease in hotel operating expenses is a result of an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($128,165 ), a decrease at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic ($107,648 ), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($89,832 ), and a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($9,208 ), partially offset by an increase in real estate taxes at certain of our hotels ($578 ), our hotel acquisitions sinceJanuary 1, 2019 ($490 ), and the conversion of one hotel from a leased to managed property during the 2020 period ($311 ). Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements. When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. Hotel operating expenses were increased by$9,208 for the three months endedJune 30, 2019 . There were no such replenishments for the three months endedJune 30, 2020 . When our guarantees and security deposits are utilized to cover shortfalls of hotel cash flows from the minimum payments due to us, we reflect such utilizations in our condensed consolidated statements of comprehensive income as a decrease to hotel operating expenses. Hotel operating expenses were decreased by$121,155 for the utilization of our security deposits and guarantees during the three months endedJune 30, 2020 . There were no such utilizations for the three months endedJune 30, 2019 . Other operating expenses. The increase in other operating expenses is a result of operating expenses we pay at certain properties we acquired as part of the SMTA Transaction inSeptember 2019 . Depreciation and amortization - hotels. The increase in depreciation and amortization - hotels is a result of the depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us sinceJanuary 1, 2019 ($6,020 ) and our hotel acquisitions sinceJanuary 1, 2019 ($471 ), partially offset by certain of our depreciable assets becoming fully depreciated sinceJanuary 1, 2019 ($5,493 ). Depreciation and amortization - net lease portfolio. The increase in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($27,816 ) and the depreciation and amortization of net lease improvements we purchased sinceJanuary 1, 2019 ($2,486 ), partially offset by certain of our depreciable assets becoming fully depreciated sinceJanuary 1, 2019 ($3,069 ). General and administrative. The decrease in general and administrative costs is primarily due to a decrease in business management fees in the 2020 period. Loss on asset impairment. We recorded a$28,514 loss on asset impairment during the three months endedJune 30, 2020 to reduce the carrying value of 17 hotel and four net lease properties to their estimated fair value. Loss on sale of real estate. We recorded a$2,853 net loss on sale of real estate during the three months endedJune 30, 2020 in connection with the sales of four net lease properties. Gain on insurance settlement. We recorded a$62,386 gain on insurance settlement during the three months endedJune 30, 2020 for insurance proceeds received for our leased hotel inSan Juan , PR related to Hurricane Maria. Under GAAP, we were required to increase the building basis of ourSan Juan hotel for the amount of the insurance proceeds. See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement. 31
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Dividend income. Dividend income represents the dividends we received from our former investment inRMR Inc. Unrealized gains (losses) on equity securities, net. Unrealized gains and losses on equity securities, net represents the adjustment required to adjust the carrying value of our former investment inRMR Inc. , which we sold inJuly 2019 , and our investment in TA common shares to their fair values as ofJune 30, 2020 andJune 30, 2019 . Interest income. The decrease in interest income is due to lower average cash balances and lower interest rates during the 2020 period. Interest expense. The increase in interest expense is due to higher average outstanding borrowings and a higher weighted average interest rate in the 2020 period. Loss on early extinguishment of debt. Loss on early extinguishment of debt represents costs incurred in the 2020 period for our repurchase of$350,000 principal amount of our$400,000 of 4.25% senior notes due 2021. Income tax benefit (expense). We recorded a$15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement during the three months endedJune 30, 2020 . See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement. Equity in earnings (losses) of an investee. Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses) of Sonesta and AIC. Net income (loss). Our net income (loss) and net income (loss) per common share (basic and diluted) each decreased in the 2020 period compared to the 2019 period primarily due to the revenue and expense changes discussed above. 32
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Six Months EndedJune 30, 2020 Compared to the Six Months EndedJune 30, 2019 For the Six Months Ended June 30, Increase % Increase 2020 2019 (Decrease) (Decrease) Revenues: Hotel operating revenues$ 500,859 $ 996,078 $ (495,219 ) (49.7 )% Rental income - hotels 2,372 10,148 (7,776 ) (76.6 )% Rental income - net lease portfolio 195,284 126,742 68,542 54.1 % Total rental income 197,656 136,890 60,766 44.4 % FF&E reserve income 201 2,502 (2,301 ) (92.0 )% Expenses: Hotel operating expenses 318,105 698,116 (380,011 ) (54.4 )% Other operating expenses 7,324 2,712 4,612 170.1 % Depreciation and amortization - hotels 135,438 133,365 2,073 1.6 % Depreciation and amortization - net lease portfolio 119,915 65,196 54,719 83.9 % Total depreciation and amortization 255,353 198,561 56,792 28.6 % General and administrative 25,326 24,442 884 3.6 % Loss on asset impairment 45,254 - 45,254 n/m Gain (loss) on sale of real estate (9,764 ) 159,535 (169,299 ) (106.1 )% Gain on insurance settlement 62,386 - 62,386 n/m Dividend income - 1,752 (1,752 ) (100.0 )% Unrealized gains (losses) on equity securities, net (1,197 ) (39,811 ) 38,614 (97.0 )% Interest income 277 1,086 (809 ) (74.5 )% Interest expense (143,147 ) (99,367 ) (43,780 ) 44.1 % Loss on early extinguishment of debt (6,970 ) - (6,970 ) n/m Income before income taxes and equity earnings of an investee (51,061 ) 234,834 (285,895 ) (121.7 )% Income tax expense (17,002 ) (799 ) (16,203 ) 2,027.9 % Equity in earnings (losses) of an investee (2,936 ) 534 (3,470 ) (649.8 )% Net income (loss)$ (70,999 ) $ 234,569 $ (305,568 ) (130.3 )% Weighted average shares outstanding (basic) 164,376 164,281 95 0.1 % Weighted average shares outstanding (diluted) 164,376 164,324
52 n/m
Net income (loss) per common share (basic and diluted)$ (0.43 ) $ 1.43 $
(1.86 ) (130.1 )%
References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months endedJune 30, 2020 , compared to the six months endedJune 30, 2019 . Hotel operating revenues. The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies resulting from the COVID-19 pandemic ($508,318 ), partially offset by the conversion of one hotel from a leased to a managed property ($13,099 ). Additional operating statistics of our hotels are included in the table on page 47. Rental income - hotels. The decrease in rental income - hotels is primarily a result of the conversion of one hotel from a leased to managed property during the 2019 period ($5,879 ) and amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($1,897 ). Rental income - hotels for the 2020 and 2019 periods includes$1,897 and$161 , respectively, of adjustments to record rent on a straight-line basis. 33
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Rental income - net lease portfolio. The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($66,889 ). We reduced rental income by$772 and$4,483 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis. FF&E reserve income. The decrease in FF&E reserve income is the result of decreased sales and the suspension of FF&E reserve contributions for our one leased hotel in the 2020 period and the conversion of one hotel from a leased hotel to a managed property in the 2020 period. Hotel operating expenses. The decrease in hotel operating expenses is a result of an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($187,413 ), a decrease at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic and certain hotels undergoing renovations during all of part of the six months endedJune 30, 2020 ($145,402 ), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($52,762 ), our hotel acquisitions sinceJanuary 1, 2019 ($3,592 ), a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($3,422 ) and a decrease in real estate taxes at certain of our hotels ($519 ), partially offset by the conversion of one hotel from a leased to managed property during the 2020 period ($13,099 ). Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements. When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. As a result, hotel operating expenses were increased by$3,422 for the six months endedJune 30, 2019 . There were no such replenishments for the six months endedJune 30, 2020 . When our guarantees and security deposits are utilized to cover shortfalls of hotel cash flows from the minimum payments due to us, we reflect such utilizations in our condensed consolidated statements of comprehensive income as a decrease to hotel operating expenses. Hotel operating expenses were decreased by$191,660 and$16,679 during the six months endedJune 30, 2020 and 2019, respectively, as a result of such utilization. Other operating expenses. The increase in other operating expenses is a result of operating expenses we pay at certain properties we acquired as part of the SMTA Transaction inSeptember 2019 . Depreciation and amortization - hotels. The increase in depreciation and amortization - hotels is a result of the depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us sinceJanuary 1, 2019 ($11,172 ) and our hotel acquisitions sinceJanuary 1, 2019 ($2,202 ), partially offset by certain of our depreciable assets becoming fully depreciated sinceJanuary 1, 2019 ($11,301 ). Depreciation and amortization - net lease portfolio. The increase in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($53,761 ) and the depreciation and amortization of net lease improvements we purchased sinceJanuary 1, 2019 ($8,278 ), partially offset by certain of our depreciable assets becoming fully depreciated sinceJanuary 1, 2019 ($7,320 ). General and administrative. The increase in general and administrative costs is primarily due to an increase in professional service expenses. Loss on asset impairment. We recorded a$45,254 loss on asset impairment during the six months endedJune 30, 2020 to reduce the carrying value of 17 hotels and six net lease properties to their estimated fair value. Gain (loss) on sale of real estate. We recorded a$9,764 net loss on sale of real estate in the 2020 period in connection with the sales of ten net lease properties and a$159,535 gain on sale of real estate during the six months endedJune 30, 2019 in connection with our sales of 20 travel centers. Gain on insurance settlement. We recorded a$62,386 gain on insurance settlement during the six months endedJune 30, 2020 as a result of insurance proceeds received for our leased hotel inSan Juan , PR related to Hurricane Maria. Under GAAP, we were required to increase the building basis of ourSan Juan hotel for the amount of the insurance proceeds. Dividend income. Dividend income represents the dividends we received from our former investment inRMR Inc. 34
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Unrealized gains (losses) on equity securities, net. Unrealized gains (losses) on equity securities, net represent the adjustment required to adjust the carrying value of our former investment inRMR Inc. , which we sold inJuly 2019 , and our investment in TA common shares, to their fair values as ofJune 30, 2020 andJune 30, 2019 . Interest income. The decrease in interest income is due to lower average cash balances and lower interest rates during the 2020 period. Interest expense. The increase in interest expense is due to higher average outstanding borrowings and weighted average interest rates in the 2020 period. Loss on early extinguishment of debt. Loss on early extinguishment of debt represents costs incurred in the 2020 period for our purchase of$350,000 principal amount of our$400,000 of 4.25% senior notes due 2021. Income tax expense. We recorded a$15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement in the three months endedJune 30, 2020 . See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement. Equity in earnings (losses) of an investee. Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses) of Sonesta and AIC. Net income (loss). Our net income (loss) and net income (loss) per common share (basic and diluted) each decreased in the 2020 period compared to the 2019 period primarily due to the revenue and expense changes discussed above. Liquidity and Capital Resources (dollar amounts in thousands, except share amounts) Our Managers and Tenants As ofJune 30, 2020 , 329 of our hotels (including one leased hotel) were included in six combination portfolio agreements; and all 329 hotels were managed by or leased to hotel operating companies. Our 809 net lease properties were leased to 180 tenants as ofJune 30, 2020 . The costs of operating and maintaining our properties are generally paid by the hotel operators as agents for us or by our tenants for their own account. Our hotel operators derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our minimum returns and rents, from their separate resources. Our hotel operators include Marriott, IHG, Sonesta, Wyndham, Hyatt andRadisson . TA is our largest net lease tenant. No other net lease tenant represents more than 1% of our total annualized minimum returns or rents. The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and our hotel managers' and tenant's businesses. Certain of our tenants' businesses have been materially and adversely impacted by the COVID-19 pandemic, which may reduce their ability or willingness to pay us our minimum returns and rents, increase the likelihood they will default in paying us rent and likely reduce the value of those properties. IHG operates 103 of our hotels under agreements requiring that, as ofJune 30, 2020 , we are to be paid annual minimum returns and rents of$216,551 . InJuly 2020 , we applied the remaining$8,992 of security deposit securing the obligations of IHG under its agreement with us. We did not receive any payments from IHG to cure shortfalls for the balance of the July minimum returns and rents of$8,395 due to us after applying the remaining security deposit or theAugust 2020 minimum returns and rents of$18,045 due to us. InJuly 2020 , we sent IHG a notice of default and termination, and inAugust 2020 , we sent IHG an additional notice of default. We are in discussions with IHG to see if there may be a mutually beneficial resolution. Absent a cure of these defaults by IHG, or if no agreement is reached, we currently plan to transition management and branding of these 103 hotels to Sonesta. If any other of our hotel operators or guarantors default in their payment obligations to us, our cash flows will decline further. 35
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We continue to carefully monitor the developments of the COVID-19 pandemic and its impact on our operators and tenants and our other stakeholders. As a result of the depressed activity at our hotels and expected losses, several of our hotel operators requested working capital advances from us to pay operating expenses. During the quarter endedJune 30, 2020 , we advanced an aggregate of$80,474 of working capital to certain of our hotel operators to cover projected operating losses. We advanced$37,000 to IHG,$30,000 to Marriott,$7,351 to Sonesta,$2,423 to Wyndham and$3,700 to Hyatt. Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain fees to the manager pursuant to the terms of the respective agreements. The amounts we have advanced to date may be insufficient to cover future losses and we may receive additional requests for working capital in the future. TA, our largest tenant, is current on all its rent obligations to us as ofAugust 6, 2020 . During the three months endedJune 30, 2020 , we collected 58.7% of rents from our other net lease tenants, including 45.6% inApril 2020 , 57.6% inMay 2020 and 74.6% inJune 2020 . InJuly 2020 , we collected 80.0% of rents due to us from our other net lease tenants. We have entered into rent deferral agreements with 80 net lease retail tenants with leases requiring an aggregate of$59,288 of annual minimum rents. Generally these rent deferrals are for one to four months of rent and will be payable by the tenants over a 12 to 24 month period beginning inSeptember 2020 . As ofAugust 6, 2020 , we have deferred an aggregate of$11,312 of rent. We may receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants. Further, we do not know whether any of our tenants have qualified for, or will receive assistance from, the Coronavirus Aid, Relief and Economic Security Act or other government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us. As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic downturn, we are unable to determine what the ultimate impact will be on our tenants and their ability and willingness to pay us rent and any additional impact this pandemic will have on our future cash flows. We define coverage for each of our hotel operating agreements as total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to the hotel minimum returns or rents due to us divided by the hotel minimum returns or rents due to us. More detail regarding coverage, guarantees and other features of our hotel operating agreements is presented in the tables and related notes on pages 45 through 47. For the twelve months endedJune 30, 2020 , all six of our hotel operating agreements, representing 62% of our total annual minimum returns and rents, generated coverage of less than 1.0x (with a range from 0.04x to 0.52x). We define net lease coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period reported based on the most recent operating information, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us. Tenants that do not report operating information are excluded from the coverage calculations. Coverage amounts include data for certain properties for periods prior to when we acquired them. In instances where we do not have financial information for the most recent quarter from our tenants, we have calculated an implied EBITDAR for the second quarter using industry benchmark data to more accurately reflect the impact of COVID-19 on our tenants' operations. We believe using only financial information from the earlier periods could be misleading as it would not reflect the negative impact those tenants experienced as a result of the COVID-19 pandemic. As a result, we believe using this industry benchmark data provides a more accurate estimated representation of recent operating results and coverage for those tenants. As ofJune 30, 2020 , our net lease properties generated coverage of 2.16x. Certain of our management arrangements or leases are subject to full or limited guarantees or are secured by a security deposit which we control. These guarantees may provide us with continued payments if the property level cash flows fail to equal or exceed guaranteed amounts due to us. Some of our managers and tenants, or their affiliates, may also supplement cash flows from our properties in order to make payments to us and preserve their rights to continue operating our properties even if they are not required to do so by guarantees or security deposits. Guarantee payments, security deposit applications or supplemental payments to us, if any, made under any of our management agreements or leases do not subject us to repayment obligations, but, under some of our agreements, the manager or tenant may recover these guarantee or supplemental payments and the security deposits may be replenished from subsequent cash flows from our properties after our future minimum returns and rents are paid. 36
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When cash flows from our hotels under certain of our agreements are less than the minimum returns or rents contractually due to us, we have utilized the applicable security features in our agreements to cover some of these shortfalls. However, several of the guarantees and all the security deposits we hold are for limited amounts, are for limited durations and may be exhausted or expire. Accordingly, the effectiveness of our various security features to provide uninterrupted payments to us is not assured. We have exhausted the security deposits held under the IHG agreement and IHG has defaulted on its payment obligations. We have also exhausted both the security deposit and the limited guaranty under the Marriott agreement. Under the Marriott agreement, once the security deposit and guaranty have been depleted, Marriott is required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination. Year to date throughJune 30, 2020 , we have received payments or utilized the available security deposit for an aggregate of 80% of the minimum returns due to us from Marriott. Based on our current estimates, we project that we may exhaust the remainder of the guarantee from Hyatt as early as the fourth quarter of 2020. OnFebruary 27, 2020 , we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our existing business arrangements, as follows: • we amended and restated our then existing Sonesta agreement, and our
existing pooling agreement with Sonesta, which combines our management
agreements with Sonesta for purposes of calculating gross revenues,
payment of hotel operating expenses, payment of fees and distributions and
minimum returns due to us, as further described below;
• we and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay
hotels currently managed by Sonesta, which as of
aggregate carrying value of
minimum returns of
repurposed, the management agreement for the applicable hotel(s) will
terminate without our being required to pay Sonesta a termination fee and
the annual minimum returns due to us under our Sonesta agreement will decrease by the amount allocated to the applicable hotel(s);
• Sonesta continues to manage 14 of our full-service hotels it then managed
and the aggregate annual minimum returns due for these hotels was reduced
from
• Sonesta issued to us a number of its shares of common stock representing
approximately (but not more than) 34% of its outstanding shares of common
stock (post-issuance) and we entered into a stockholders agreement with Sonesta,Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta;
• we and Sonesta modified our then existing Sonesta agreement and pooling
agreement so that up to 5% of the gross revenues of each of our 14
full-service hotels managed by Sonesta will be escrowed for future capital
expenditures as FF&E reserves, subject to available cash flow after payment of the annual minimum returns due to us and working capital advances, if any, under our Sonesta agreement;
• we and Sonesta modified our then existing Sonesta agreement and pooling
agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for "cause", casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the
management agreement for any of our full service hotels managed by Sonesta
may be terminated for performance reasons, and (3) the provisions included
in our historical pooling agreement that allowed either us or Sonesta to
require the marketing for sale of non-economic hotels were removed; and
• we and Sonesta extended the initial expiration date of the then existing
management agreements for our full-service hotels located in
and
align with the initial expiration date for our other full-service hotels
managed by Sonesta.
Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement. Additional details of this agreement are set forth in Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. We previously leased 48 vacation units to Destinations at our full-service hotel located inChicago, IL , which Sonesta began managing inNovember 2019 and which had previously been managed by Wyndham. EffectiveMarch 1, 2020 , Sonesta commenced managing those units and those units were added to our Sonesta agreement for thatChicago hotel. 37
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Our Wyndham agreement expires onSeptember 30, 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold. Wyndham is required to pay us all cash flows of the hotels after payment of hotel operating costs. Wyndham is not entitled to any base management fees for the remainder of the agreement term. Our Operating Liquidity and Capital Resources Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are minimum returns from our managed hotels, minimum rents from our leased hotel and net lease portfolio and borrowings under our revolving credit facility. We receive minimum returns and rents from our managers and tenants monthly. We may receive additional returns, percentage rents and our share of the operating profits of our managed hotels after payment of management fees and other deductions, if any, either monthly or quarterly, and these amounts are usually subject to annual reconciliations. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter. Due to the economic uncertainty caused by the COVID-19 pandemic, we reduced our quarterly distribution to our shareholders beginning with the quarter endedMarch 31, 2020 to$0.01 per share and we expect our quarterly distribution to continue at that rate for the foreseeable future, subject to REIT tax requirements. Further, our managers and tenants may become further or increasingly unable or unwilling to pay minimum returns and rents to us when due as a result of current economic conditions and, as a result, our cash flows and net income could decline. The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands): Six Months
Ended
2020
2019
Cash and cash equivalents and restricted cash at the beginning of the period
$ 81,259 $ 76,003 Net cash provided by (used in): Operating activities 48,797 239,898 Investing activities (74,760 ) 531 Financing activities (5,438 )
(262,952 ) Cash and cash equivalents and restricted cash at the end of the period
$ 49,858
The decrease in cash flows provided by operating activities for the six months endedJune 30, 2020 as compared to the prior year period is primarily due to an increase in security deposit utilization in the 2020 period, lower returns earned from our hotel portfolio and higher interest expense in the 2020 period. The change from cash flows provided by investing activities in the 2019 period to cash used in investing activities in the 2020 period is primarily due to the proceeds received from our sale of 20 travel centers in the 2019 period, partially offset by a decrease in real estate acquisition activity in the 2020 period. The decrease in cash used in financing activities for the six months endedJune 30, 2020 as compared to the prior year period is primarily due to the issuance of$800,000 aggregate principal amount of senior unsecured notes, offset by greater net payments under our revolving credit facility, our repurchase of$350,000 aggregate principal amount of senior unsecured notes and lower common share distributions compared to the 2019 period. We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. As a REIT, we do not expect to pay federal income taxes on the majority of our income; however, the income realized by our TRSs in excess of the rent they pay to us is subject toU.S. federal income tax at corporate income tax rates. In addition, the income we receive from our hotels inCanada andPuerto Rico is subject to taxes in those jurisdictions and we are subject to taxes in certain states where we have properties despite our qualification for taxation as a REIT. Our Investment and Financing Liquidity and Capital Resources Various percentages of total sales at some of our hotels are escrowed as FF&E reserves to fund future capital improvements. During the six months endedJune 30, 2020 , our hotel managers and tenants deposited$33,806 to these accounts and spent$95,744 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As ofJune 30, 2020 , there was$29,652 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash. As a result of the COVID-19 pandemic and the adverse impact on the lodging industry and our properties, we and certain of our hotel operators have agreed to temporarily suspend the required contribution to our FF&E reserves under certain of our agreements through as late asDecember 31, 2020 as further defined below. For more information, see Note 6 to our condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. As a result, less cash will be available to us to fund future capital improvements and we may be required to provide additional fundings in excess of amounts that otherwise would have been available in escrowed FF&E reserves. 38
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Our hotel operating agreements generally provide that, if necessary, we may provide our managers and tenants with funding for capital improvements to our hotels in excess of amounts otherwise available in escrowed FF&E reserves or when no FF&E reserves are available. To the extent we make such additional fundings, our annual minimum returns or rents generally increase by a percentage of the amount we fund. During the six months endedJune 30, 2020 , we funded$74,100 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels as follows: • During the six months endedJune 30, 2020 , we funded$28,900 for capital
improvements to certain hotels under the Marriott agreement using cash on
hand and borrowings under our revolving credit facility. Under the
Marriott agreement, we have previously agreed to fund capital improvements
of approximately
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
result of current market conditions. We currently expect to fund
for capital improvements under this agreement during the last six months
of 2020 using cash on hand or borrowings under our revolving credit
facility. As we fund these improvements, the contractual minimum returns
payable to us increase. • We funded$3,900 for capital improvements to hotels under the IHG agreement during the six months endedJune 30, 2020 . We currently do not expect to fund any capital improvements during the last six months of
2020. Effective
to the FF&E reserve under the IHG agreement for the remainder of 2020 as a
result of current market conditions.
• Under our Sonesta agreement, FF&E deposits are required only if there are
excess cash flows after our payment of minimum returns and reimbursement
of owner or manager advances, if any. During the six months ended
2020, we funded
included in our Sonesta agreement using cash on hand and borrowings under
our revolving credit facility. We currently expect to fund
capital improvements during the last six months of 2020 under this
agreement using cash on hand or borrowings under our revolving credit
facility. As we fund these improvements, the contractual minimum returns
payable to us increase.
• We did not fund any capital improvements under our Hyatt agreement during
the six months ended
capital improvements under this agreement during the last six months of 2020.
• We did not fund any capital improvements under our
during the six months ended
fund any capital improvements under this agreement during the last six
months of 2020. Also, effective
suspend contributions to the FF&E reserve under our
through the remainder of 2020 as a result of market conditions.
• No FF&E escrow deposits are required under our Wyndham agreement. We are
required to reimburse Wyndham for capital improvements to hotels in our
Wyndham agreement. During the six months ended
reimbursed
our Wyndham agreement using cash on hand. We currently expect to fund
of capital improvements under this agreement for the last six months of 2020 using cash on hand and borrowings under our revolving credit facility. Our net lease portfolio leases do not require FF&E escrow deposits. However, tenants under these leases are required to maintain the leased properties, including structural and non-structural components. Tenants under certain of our net lease portfolio leases, including TA, may request that we purchase qualifying capital improvements to the leased facilities in return for minimum rent increases or we may agree to provide allowances for tenant improvements upon execution of new leases or when renewing our existing leases. We funded$4,400 of capital improvements to properties under these lease provisions during the six months endedJune 30, 2020 . Tenants are not obligated to request and we are not obligated to purchase any such improvements. As ofJune 30, 2020 , we had$1,199 of unspent leasing-related obligations related to certain net lease tenants. During the six months endedJune 30, 2020 , we acquired three net lease properties with approximately 6,696 square feet in two states for an aggregate purchase price of$7,071 , including acquisition related costs of$71 using cash on hand. During the six months endedJune 30, 2020 , we sold ten net lease properties with approximately 1,101,996 square feet in eight states for an aggregate sales price of$63,960 , excluding closing costs. We used the net proceeds from these sales to repay amounts outstanding under our revolving credit facility. InJune 2020 , we issued$800,000 aggregate principal amount of our 7.50% unsecured senior notes due 2025. The aggregate net proceeds from this offering were$788,002 , after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility. 39
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InJune 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. InJuly 2020 , we participated in an underwritten public equity offering by TA pursuant to which we purchased 500,797 shares of TA common stock at the public offering price of$14 per share for$7,011 using cash on hand. We have entered into an agreement to sell eight Marriott branded hotels with 834 rooms in four states with an aggregate net carrying value of$34,956 for an aggregate purchase price of$45,250 . We have entered an agreement to sell one Wyndham branded hotel with 344 rooms with a net carrying value of$3,365 for a sales price of$3,500 . We expect these sales to be completed in the fourth quarter of 2020. We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness. The amount of minimum returns due from Marriott will be reduced by the amount allocated to the hotels, which was$7,935 as ofJune 30, 2020 . The sales of these hotels are subject to various contingencies; accordingly, we cannot provide any assurance that it will sell any of these eight hotels. InJuly 2020 , we sold one net lease property with 2,935 square feet with a carrying value of$657 requiring an annual minimum rent of$49 for a sale price of$700 .We have also entered into agreements to sell seven net lease properties with approximately 68,343 square feet in six states with an aggregate carrying value of$6,282 with leases requiring an aggregate of$332 annual minimum rents as ofJune 30, 2020 for an aggregate sales price of$6,875 . The sales of these hotel and retail properties are subject to conditions, may not be completed, may be delayed or terms may change. We currently expect the sales of these net lease properties to be completed in the third quarter of 2020. We expect to use the net sales proceeds from any net lease properties sold to repay outstanding indebtedness. OnFebruary 20, 2020 , we paid a regular quarterly distribution to our common shareholders of record onJanuary 27, 2020 of$0.54 per share, or$88,863 . OnMay 21, 2020 , we paid a regular quarterly distribution of$0.01 per share, or approximately$1,646 , to shareholders of record onApril 21, 2020 . OnJuly 16, 2020 , we declared a regular quarterly distribution to common shareholders of record onJuly 27, 2020 of$0.01 per share, or approximately$1,646 . We expect to pay this amount on or aboutAugust 20, 2020 . In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a$1,000,000 revolving credit facility and$400,000 term loan which are governed by a credit agreement with a syndicate of institutional lenders. The maturity date of our revolving credit facility isJuly 15, 2022 , and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of this facility for two additional six-month periods. We are required to pay interest at the rate of LIBOR plus a premium, which was 205 basis points per annum, subject to a LIBOR floor of 0.50%, atJune 30, 2020 , on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum atJune 30, 2020 . Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As ofJune 30, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 2.55%. As ofJune 30, 2020 , we had$33,127 outstanding and$966,873 available to borrow under our revolving credit facility. As ofAugust 6, 2020 , we had$32,089 outstanding and$967,911 available to borrow under our revolving credit facility, subject to the minimum liquidity requirements under our credit agreement described below. Our term loan, which matures onJuly 15, 2023 , is prepayable without penalty at any time. We are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 225 basis points per annum, subject to a LIBOR floor of 0.50%, atJune 30, 2020 . The interest rate premium is subject to adjustment based upon changes to our credit ratings. As ofJune 30, 2020 , the annual interest rate for the amount outstanding under our term loan was 2.75%. Our credit agreement also includes a feature under which the maximum borrowing availability may be increased to up to$2,300,000 on a combined basis in certain circumstances. OnMay 8, 2020 , we amended the credit agreement governing our$1,000,000 unsecured revolving credit facility and$400,000 unsecured term loan. The amendment provides for a waiver of certain of the financial covenants under our credit agreement through the Waiver Period during which, subject to certain conditions, we will continue to have access to undrawn amounts under the credit facility. During the Waiver Period, and continuing thereafter until such time as we have demonstrated compliance with certain of our financial covenants as ofJune 30, 2021 : • we are required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our$1,000,000 revolving credit facility) of not less than$125,000 ; 40
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• our interest premium over LIBOR under our revolving credit facility and
term loan was increased by 50 basis points;
• our ability to pay distributions on our common shares has been limited to
amounts required to maintain our qualification for taxation as a REIT and
to avoid the payment of certain income and excise taxes, and to pay a cash
dividend of
• we are subject to certain additional covenants, including additional
restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other
things, certain categories of capital expenditures and costs, and certain
share purchases); and • we are generally required to apply the net cash proceeds from the
disposition of assets, capital markets transactions, debt refinancings or
COVID-19 pandemic related government stimulus programs to the repayment of
outstanding loans under the credit agreement.
Additionally, the feature pursuant to which our maximum aggregate borrowings under the credit agreement may be increased up to$2,300,000 may not be utilized throughMarch 31, 2021 . We have pledged our equity in certain of our property owning subsidiaries to secure our obligations under the credit agreement. These subsidiaries owned properties with approximately$876,715 of undepreciated book value as ofJune 30, 2020 . We will be required to pledge the equity of additional property owning subsidiaries in the event that the Collateral Value Percentage, as defined, exceeds 50%. These pledges are subject to release in full, (i) subject to the satisfaction of certain conditions, including, among other things, our having complied with the financial covenants under the credit agreement for two fiscal quarters following the end of the Waiver Period or (ii) in connection with Qualified Note Issuance provided that, among other conditions, the outstanding amount of the revolving facility does not exceed$750,000 and the term loan has been paid in full. If, following a release of pledges in connection with Qualified Note Issuance, a request for a borrowing under the revolving facility would result in more than$750,000 outstanding under the revolving facility, we are required to deliver new equity pledges such that the Collateral Value Percentage is no more than 50%. We have the right to substitute collateral and otherwise obtain the release of pledged subsidiaries in certain circumstances. While the equity pledges remain in effect, we will remain subject to the restrictions our ability to make investments or pay distributions on our common shares that are described above. Our term debt maturities (other than our revolving credit facility and term loan) as ofJune 30, 2020 were as follows: Year Maturity 2020 $ - 2021 50,000 2022 500,000 2023 500,000 2024 1,175,000 2025 1,150,000 2026 800,000 2027 400,000 2028 400,000 2029 425,000 2030 400,000$ 5,800,000 None of our unsecured debt obligations require principal or sinking fund payments prior to their maturity dates. We currently expect to use cash on hand, the cash flows from our operations, borrowings under our revolving credit facility, net proceeds from any asset sales and net proceeds of offerings of equity or debt securities to fund our future debt maturities, operations, capital expenditures, distributions to our shareholders and other general business purposes. 41
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When significant amounts are outstanding for an extended period of time under our revolving credit facility, or the maturities of our indebtedness approach, we currently expect to explore refinancing alternatives. Such alternatives may include incurring additional debt, issuing new equity securities and the sale of properties. We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. We may also seek to participate in joint ventures or other arrangements that may provide us additional sources of financing. Although we have not historically done so, we may also assume mortgage debt on properties we may acquire or obtain mortgage financing on our existing properties. While we believe we will have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase. Also, as noted above, we are limited in our ability to incur additional debt during the Waiver Period pursuant to our credit agreement. Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then creditworthiness. We have no control over market conditions. Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the continued duration and severity of the current economic downturn resulting from the COVID-19 pandemic are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt the capital markets generally and limit our access to financing from public sources or on favorable terms, particularly if the global financial markets experience significant disruptions. Off Balance Sheet Arrangements As ofJune 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 atJune 30, 2020 consisted of outstanding borrowings under our$1,000,000 revolving credit facility, our$400,000 term loan and$5,800,000 of publicly issued term debt. Our publicly issued term debt is governed by our indentures and related supplements. These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios and our credit agreement restricts our ability to make distributions under certain circumstances. Our credit agreement and our unsecured senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includesRMR LLC ceasing to act as our business manager. As ofJune 30, 2020 , we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement, subject to the waivers described above. As noted above, in response to current market conditions we and our lenders amended our credit agreement to provide limited waivers of certain covenants. Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration which could be triggered by a change in our debt ratings. However, under our credit agreement, our highest senior debt rating is used to determine the fees and interest rates we pay. Accordingly, if that debt rating is downgraded, our interest expense and related costs under our revolving credit facility and term loan would increase. Our public debt indentures and their supplements contain cross default provisions to any other debt of$20,000 or more ($50,000 or more in the case of our indenture entered into inFebruary 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. 42
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Supplemental Guarantor Information InMarch 2020 , theSecurities and Exchange Commission , orSEC , approved Release No. 33-10762, Financial Disclosures About Guarantors and Issuers ofGuaranteed 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 afterJanuary 4, 2021 , with early application permitted. We adopted the new disclosure requirements permitted under Release 33-10762 effective for the quarter endedMarch 31, 2020 . Our$800,000 7.50% unsecured senior notes due 2025 are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement. The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining$5,000,000 of senior unsecured notes do not have the benefit of any guarantees. A subsidiary guarantor's guarantee of the$800,000 notes and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody's, or BBB (or the equivalent) byStandard & Poor's , or if Moody's orStandard & Poor's ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due on these notes or the guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of these notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, these notes and the related guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries: As of June 30, 2020 As of December 31, 2019 Real estate properties, net(1) $ 7,064,672 $ 7,334,472 Intercompany balances(2) 537,020 612,632 Other assets, net 798,992 674,705 Total assets $ 8,400,684 $ 8,621,809 Indebtedness, net $ 5,732,018 $ 5,287,658 Other liabilities 785,194 1,226,777 Total liabilities $ 6,517,212 $ 6,514,435 Six Months Ended June 30, 2020 Year Ended December 31, 2019 Revenues$ 655,631 $ 2,296,465 Expenses 791,778 2,008,539 Net income (loss) (136,147 ) 287,926
(1) Real estate properties, net as of
includes
by us and not included in the assets of the subsidiary guarantors.
(2) Intercompany balances represent receivables from non-guarantor subsidiaries.
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Management Agreements, Leases and Operating Statistics (dollar amounts in thousands) As ofJune 30, 2020 , we owned and managed a diverse portfolio of hotels and net lease properties acrossthe United States and inPuerto Rico andCanada with 149 brands across 23 industries.Hotel Portfolio As ofJune 30, 2020 , 329 of our hotels (including one leased hotel) were included in six portfolio agreements. As ofJune 30, 2020 , our hotels were managed by or leased to separate affiliates of IHG, Marriott, Sonesta, Hyatt,Radisson and Wyndham under six agreements. The tables and related notes below through page 47 summarize significant terms of our hotel lease and management agreements as ofJune 30, 2020 . These tables also include statistics reported to us or derived from information reported to us by our hotel managers and tenant. These statistics include coverage of our minimum returns or minimum rents and occupancy, ADR and RevPAR for our hotel properties. We consider these statistics and the management agreement or lease security features also presented in the tables and related notes on the following pages to be important measures of our managers' and tenant's success in operating our hotel properties and their ability to continue to pay us. However, this third party reported information is not a direct measure of our financial performance and we have not independently verified the operating data. Number of Rent / Return Coverage (3) Rooms or Three Months Ended Twelve Months Ended Operating Agreement Number of Suites Annual Minimum June 30, June 30, Reference Name Properties (Hotels) Investment (1) Return/Rent (2) 2020 2019 2020 2019 IHG (4)(5) 103 17,154$ 2,381,721 $ 216,551 (0.11x) 1.09x 0.50x 0.97x Marriott (4)(6) 122 17,085 1,869,817 192,891 (0.32x) 1.29x 0.52x 1.10x Sonesta (4)(7) 53 9,588 2,004,204 119,779 (0.59x) 0.89x 0.04x 0.64x Hyatt (8) 22 2,724 301,942 22,037 (0.36x) 1.20x 0.37x 0.95x Radisson (4)(9) 9 1,939 289,139 20,442 (0.80x) 1.13x 0.36x 0.93x Wyndham (4)(10) 20 2,914 214,917 18,914 (0.61x) 0.74x 0.04x 0.50x Total / Average Hotels 329 51,404$ 7,061,740 $ 590,614 (0.33x) 1.11x 0.38x 0.91x (1) Represents the historical cost of our hotel properties plus capital improvements funded by us less impairment write-downs, if any, and
excludes capital improvements made from FF&E reserves funded from hotel
operations which do not result in increases in hotel minimum returns or rents.
(2) Each of our hotel management agreements or leases provides for payment to
us of an annual minimum return or rent, respectively. Certain of these
minimum payment amounts are secured by full or limited guarantees or
security deposits as more fully described below. In addition, certain of
our hotel management agreements provide for payment to us of additional
amounts to the extent of available cash flows as defined in the management
agreement. Payments of these additional amounts are not guaranteed or secured by deposits. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments necessary to record rent on a straight-line basis.
(3) We define hotel coverage as combined total hotel property level revenues
minus all hotel property level expenses and FF&E reserve escrows that are
not subordinated to hotel minimum returns or rents due to us (which data is provided to us by our hotel managers or tenant), divided by the hotel
minimum returns or rents due to us. Coverage amounts for the IHG agreement
include data for periods prior to our ownership of certain hotel properties. Coverage amounts for our Sonesta agreement include data for two hotels prior to when they were managed by Sonesta.
(4) During the three months ended
hotels, threeRadisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic.
(5) We lease 102 IHG branded hotels (20 Staybridge Suites®, 61 Candlewood
Suites®, two InterContinental®, 11 Crowne Plaza®, three Holiday Inn® and
five Kimpton® Hotels & Restaurants) in 30 states in the
of
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
annual minimum return amount presented in the table above includes
of minimum rent related to the leased
agreement and the lease expire in 2036; IHG has two renewal options for 15
years each for all, but not less than all, of the hotels.
As ofJune 30, 2020 , we held a security deposit of$8,992 under this agreement to cover shortfalls in hotel cash flows to pay minimum returns and rent due to us during the period. This security deposit, if utilized, may be replenished and increased up to$100,000 from the hotels' available cash flows in excess of our minimum return, working capital advances and certain management fees, if any. OnJune 1, 2020 , we entered into a letter agreement with respect to certain matters related to the IHG agreement, including waiving the minimum security deposit requirement through 2021. InJuly 2020 , we applied the remaining security deposit securing the obligations of IHG under the IHG agreement. We did not receive any payments from IHG to cure shortfalls for the balance of the July minimum returns and rents of$8,395 due to us, after applying the remaining security deposit, or theAugust 2020 minimum returns and rents of$18,045 due to us. InJuly 2020 we sent IHG a notice of default and termination and inAugust 2020 , we sent IHG an additional notice of default. We are in discussions with IHG to see if there may be a mutually beneficial resolution. Absent a cure of these defaults by IHG, or if no agreement is reached, we currently plan to transition management and branding of these 103 hotels to Sonesta. The IHG agreement requires 5% of gross revenues from hotel operations be placed in escrow for hotel maintenance and periodic renovations, or an FF&E reserve. As part of the June letter agreement we entered, this requirement to fund FF&E reserves was waived throughSeptember 30, 2020 . 44
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In addition to our minimum return, this management agreement provides for an annual additional return payment to us of$12,067 from the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve payment of our minimum return, working capital advances, payment of certain management fees and replenishment and expansion of the security deposit, if any. In addition, the agreement provides for payment to us of 50% of the hotels' available cash flows after payment to us of the annual additional return amount. These additional return amounts are not guaranteed or secured by the security deposit we held. (6) We lease our 122 Marriott branded hotels (two full service Marriott®, 35
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
and Marriott has two renewal options for 10 years each for all, but not less than all, of the hotels. As ofJune 30, 2020 , we fully utilized the remaining security deposit of$4,790 we held under this agreement to cover payment shortfalls of our minimum returns. This security deposit may be replenished and increased up to$64,700 from a share of the hotels' available cash flows in excess of our minimum return, certain management fees and working capital advances, if any. Marriott also provided us with a$30,000 limited guaranty to cover payment shortfalls up to 85% of our minimum return after the available security deposit balance has been depleted. As ofJune 30, 2020 , there was no security deposit available to cover future payment shortfalls and the$30,000 guaranty was exhausted. This limited guaranty expired when it was exhausted. We have the right to terminate the Marriott agreement after the security deposit and the guaranty have been depleted if Marriott fails to fund up to 80% of the minimum returns due to us. The Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under the Marriott agreement for the remainder of 2020. In addition to our minimum return, this agreement provides for payment to us of 60% of the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve, payment of our minimum return, payment of certain management fees, working capital advances and replenishment of the security deposit. This additional return amount is not guaranteed or secured by the security deposit. (7) We lease our 53 Sonesta branded hotels (seven Royal Sonesta® Hotels, seven
Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states
to certain of our TRSs. The hotels are managed by Sonesta under a
combination management agreement which expires in 2037; Sonesta has two
renewal options for 15 years each for all, but not less than all, of these
53 hotels.
We have no security deposit or guaranty from Sonesta. Accordingly, payment by Sonesta of the minimum return due to us under this management agreement is limited to the hotels' available cash flows after the payment of operating expenses, including certain management fees, and we are financially responsible for operating cash flows deficits, if any. In addition to our minimum return, this management agreement provides for payment to us of 80% of the hotels' available cash flows after payment of hotel operating expenses, including certain management fees to Sonesta, our minimum return, working capital advances and any required FF&E reserves. (8) We lease our 22 Hyatt Place® branded hotels in 14 states to one of our
TRSs. The hotels are managed by a subsidiary of Hyatt, under a combination
management agreement that expires in 2030. Hyatt has two renewal options
for 15 years each for all, but not less than all, of the hotels.
We have a limited guaranty of$50,000 under this agreement to cover payment shortfalls of our minimum return. As ofJune 30, 2020 , the available Hyatt guaranty was$8,561 . The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances. In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Hyatt of working capital and guaranty advances, if any. This additional return is not guaranteed. Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve, subject to available cash flow. (9) We lease our nineRadisson branded hotels (four Radisson® Hotels &
Resorts, four Country Inns & Suites® by
hotel) in six states to one of our TRSs and these hotels are managed by a
subsidiary of
expires in 2035 and
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 ofJune 30, 2020 , the availableRadisson guaranty was$27,426 . The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances. In addition to our minimum return, this management agreement provides for payment to us of 50% of the hotels' available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement toRadisson of working capital and guaranty advances, if any. This additional return is not guaranteed. OurRadisson agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effectiveApril 1, 2020 , we andRadisson have agreed to suspend contributions to the FF&E reserve under ourRadisson agreement for the remainder of 2020. (10) We lease our 20 Wyndham branded hotels (fourWyndham Hotels and Resorts® and 16 Hawthorn Suites® hotels) in 13 states to one of our TRSs. The hotels are managed by a subsidiary of Wyndham under a combination management agreement which expires inSeptember 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold. We have no guarantee or security deposit from Wyndham. Payment by Wyndham is limited to the available cash flows after payment of operating expenses. Wyndham is not entitled to any base management fees for the remainder of the agreement. 45
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The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenant by management agreement or lease for the periods indicated. All operating data presented are based upon the operating results provided by our hotel managers and tenant for the indicated periods. We have not independently verified our managers' or tenants' operating data. No. of Three Months Ended June 30, Six Months Ended June 30, No. of Rooms / Hotels Suites 2020 2019 Change 2020 2019 Change ADR IHG (1) (2) 103 17,154$ 76.44 $ 125.17 (38.9 %) 99.80 124.01 (19.5 %) Marriott (1) 122 17,085 103.97 139.22 (25.3 %) 128.86 139.68 (7.7 %) Sonesta (1) (2) (3) 53 9,588 87.14 155.21 (43.9 %) 118.44 150.98 (21.6 %) Hyatt 22 2,724 81.62 110.52 (26.1 %) 98.82 111.68 (11.5 %) Radisson (1) (2) 9 1,939 95.37 137.14 (30.5 %) 119.91 133.74 (10.3 %) Wyndham (1) 20 2,914 61.32 83.44 (26.5 %) 71.27 83.10 (14.2 %) All Hotels Total / Average 329 51,404$ 84.34 $ 132.55 (36.4 %)$ 110.24 $ 131.39 (16.1 %) OCCUPANCY IHG (1) (2) 103 17,154 38.2 % 80.8 % (42.6)Pts 50.3 % 76.6 % (26.3)Pts Marriott (1) 122 17,085 19.5 % 76.1 % (56.6)Pts 36.2 % 70.8 % (34.6)Pts Sonesta (1) (2) (3) 53 9,588 25.9 % 73.8 % (47.9)Pts 38.3 % 68.4 % (30.1)Pts Hyatt 22 2,724 28.1 % 82.8 % (54.7)Pts 43.8 % 78.7 % (34.9)Pts Radisson (1) (2) 9 1,939 12.4 % 75.2 % (62.8)Pts 33.1 % 69.3 % (36.2)Pts Wyndham (1) 20 2,914 31.4 % 70.5 % (39.1)Pts 42.1 % 65.5 % (23.4)Pts All Hotels Total / Average 329 51,404 27.8 % 77.2 % (49.4)Pts 41.9 % 72.3 % (30.4)Pts RevPAR IHG (1) (2) 103 17,154$ 29.20 $ 101.14 (71.1 %) 50.20 94.99 (47.2 %) Marriott (1) 122 17,085 20.27 105.95 (80.9 %) 46.65 98.89 (52.8 %) Sonesta (1) (2) (3) 53 9,588 22.57 114.54 (80.3 %) 45.36 103.27 (56.1 %) Hyatt 22 2,724 22.94 91.51 (74.9 %) 43.28 87.89 (50.8 %) Radisson (1) (2) 9 1,939 11.83 103.13 (88.5 %) 39.69 92.68 (57.2 %) Wyndham (1) 20 2,914 19.25 58.83 (67.3 %) 30.00 54.43 (44.9 %) All Hotels Total / Average 329 51,404$ 23.45 $ 102.33 (77.1 %)$ 46.19 $ 94.99 (51.4 %)
(1) During the three months ended
hotels, threeRadisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic. (2) Operating data includes data for certain hotels for periods prior to when we acquired them. (3) Operating data includes data for two hotels for periods prior to when these were managed by Sonesta. Net Lease Portfolio As ofJune 30, 2020 , our 809 net lease properties located in 42 states were leased to 180 tenants. These tenants operate in 22 distinct industries including travel centers, casual dining and quick service restaurants, movie theaters, health and fitness, automobile service and others. TA is our largest tenant and leases 179 travel centers under five master lease agreements that expire between 2029 and 2035 and require annual minimum rents of$246,110 , which represents approximately 25.6% of our total minimum returns and rent as ofJune 30, 2020 . As ofJune 30, 2020 , our net lease properties were 99% occupied and we had 15 properties available for lease. During 2020 we entered into lease renewals for 506,780 rentable square feet at weighted (by rentable square feet) average rents that were 7.0% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 13.7 years and leasing concessions and capital commitments were$7,501 , or$14.80 per square foot. Also during the quarter endedJune 30, 2020 , we entered into new leases for an aggregate of 39,892 rentable square feet at weighted (by rentable square feet) average rents that were 25.9% below prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was six years and leasing concessions and capital commitments were$156,629 , or$3.93 per square foot. 46
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As of
Percent of Total Percent of Annualized Annualized No. of Investment (1) Total Minimum Rent Minimum Rent (2) Brand Buildings (3) Investment (2) (3) (3) Coverage (4)
1. TravelCenters of America 134
$ 168,011 45.5 % 1.95x
2. Petro Stopping Centers 45 1,021,226 19.6 %
78,099 21.1 % 1.55x 3. AMC Theatres 13 121,701 2.3 % 9,412 2.5 % 0.99x 4. The Great Escape 14 98,242 1.9 % 7,140 1.9 % 4.13x 5. Life Time Fitness 3 92,617 1.8 % 5,246 1.4 % 2.99x 6. Buehler's Fresh Foods 5 76,536 1.5 % 5,143 1.4 % 4.33x 7. Heartland Dental 59 61,120 1.2 % 4,493 1.2 % 2.07x 8. Pizza Hut 61 61,108 1.2 % 4,271 1.2 % 1.26x 9. Regal Cinemas 6 44,476 0.9 % 3,658 1.0 % 0.89x 10. Express Oil Change 23 49,724 1.0 % 3,379 0.9 % 3.50x 11. Other (5) 446 1,298,723 24.8 % 80,571 21.9 % 3.01 x Total 809$ 5,207,062 100.0 %$ 369,423 100.0 % 2.16x
(1) Represents historical cost of our properties plus capital improvements
funded by us less impairment write-downs, if any.
(2) Each of our leases provides for payment to us of minimum rent. Certain of
these minimum payment amounts are secured by full or limited guarantees.
Annualized minimum rent amounts represent cash rent amounts due to us and
exclude adjustments, if any, to record scheduled rent changes under
certain of our leases, the deferred rent obligations payable to us under
our leases with TA, and the estimated future payments to us under our TA
leases for the cost of removing underground storage tanks at our travel
centers on a straight-line basis, or any reimbursement of expenses paid by
us.
(3) As of
value of$8,248 and annual minimum rent of$789 classified as held for sale.
(4) See page 36 for our definition of coverage.
(5) Other includes 119 distinct brands with an average investment of
and average annual minimum rent of
As ofJune 30, 2020 , our top 10 net lease tenants based on annualized minimum rent are listed below. Percent of Percent of Annualized Total Brand No. of Investment (1) Total Minimum Rent Annualized
Tenant Affiliation Buildings (2) Investment (2) (3) Minimum Rent Coverage (4)
TravelCenters of TravelCenters 1. America and Petro 179$ 3,302,815 63.4 %$ 246,110 66.6 % 1.83x (5) (6) Universal Pool The Great 2. Co., Inc. Escape 14 98,242 1.9 % 7,140 1.9 % 4.13x Healthy Way of Life Time 3. Life II, LLC Fitness 3 92,617 1.8 % 5,246 1.4 % 2.99x (5) 4. Styx Acquisition, Buehler's 5 76,536 1.5 % 5,143 1.4 % LLC Fresh Foods 4.33x (5) Professional Resource Heartland 5. Development, Inc. Dental 59 61,120 1.2 % 4,493 1.2 % 2.07x Regal Cinemas, 6. Inc. Regal Cinemas 6 44,476 0.9 % 3,658 1.0 % 0.89xEastwynn Theatres , 7. Inc. AMC Theatres 5 41,771 0.8 % 3,541 1.0 % 0.57x Express Oil Express Oil 8. Change, LLC Change 23 49,724 1.0 % 3,379 0.9 % 3.50x Pilot Travel Flying J 9. Centers LLC Travel Plaza 3 41,681 0.8 % 3,151 0.9 % 3.46x B&B Movie 10. Theatres, LLC B&B Theatres 4 34,369 0.7 % 3,100 0.8 % 0.85x Subtotal, top 10 301 3,843,351 74.0 % 284,961 77.1 % 1.96x 11. Other (7) Various 508 1,345,747 26.0 % 84,462 22.9 % 2.84x Total 809$ 5,189,098 100.0 %$ 369,423 100.0 % 2.16x (1) Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.
(2) Each of our leases provides for payment to us of minimum rent. Certain of
these minimum payment amounts are secured by full or limited guarantees.
Annualized minimum rent amounts represent cash rent amounts due to us and
exclude adjustments, if any, to record scheduled rent changes under
certain of our leases, the deferred rent obligations payable to us under
our leases with TA, and the estimated future payments to us under our TA
leases for the cost of removing underground storage tanks at our travel
centers on a straight-line basis, or any reimbursement of expenses paid by
us.
(3) As of
carrying value of$8,248 and annual minimum rent of$789 classified as held for sale.
(4) See page 36 for our definition of coverage.
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(5) Leases subject to full or partial corporate guarantee.
(6) TA is our largest tenant. We lease 179 travel centers (134 under the
TravelCenters of America brand and 45 under the Petro Stopping Centers
brand) to a subsidiary of TA under master leases that expire in 2029,
2031, 2032, 2033 and 2035, respectively. TA has two renewal options for 15
years each for all of the travel centers. In addition to the payment of
our minimum rent, the TA leases provide for payment to us of percentage
rent based on increases in total non-fuel revenues over base levels (3% of
non-fuel revenues above 2015 non-fuel revenues). These leases provide for
payment of an additional half percent (0.5%) of non-fuel revenues above 2019 non-fuel base revenues. TA's remaining deferred rent obligation of
31, 2023. (7) Other includes 170 tenants with an average investment of$7,916 and average annual minimum rent of$497 .
As of
Percent of Percent of Annualized Total No. of Investment (1) Total Minimum Rent Annualized Industry Buildings (2) Investment (2) (3)
Minimum Rent Coverage (4)
Travel Centers 182$ 3,344,496 64.2%$ 249,261 67.5 % 1.85x Restaurants-Quick Service 250 319,543 6.1% 21,106 5.7 % 2.27x Movie Theaters 24 209,846 4.0% 16,770 4.5 % 0.95x Restaurants-Casual Dining 61 216,346 4.1% 11,076 3.0 % 1.68x Health and Fitness 13 184,744 3.5% 9,398 2.5 % 2.57x Miscellaneous Retail 19 114,433 2.2% 7,140 2.0 % 4.13x Medical/Dental Office 71 118,098 2.3% 9,172 2.5 % 2.63x Grocery 19 129,219 2.5% 8,599 2.3 % 4.32x Automotive Parts and Service 63 96,496 1.9% 6,557 1.8 % 3.01x Apparel 1 11,027 0.2% 670 0.2 % -6.53x Automotive Dealers 9 68,756 1.3% 4,985 1.3 % 4.73x Entertainment 4 61,436 1.2% 1,782 0.5 % 2.15x Educational Services 9 55,647 1.1% 4,127 1.1 % 2.59x Sporting Goods 3 52,022 1.0% 3,489 0.9 % 3.34x Miscellaneous Manufacturing 6 31,824 0.6% 2,294 0.6 % 16.02x Building Materials 27 30,036 0.6% 2,510 0.7 % 3.89x Car Washes 5 28,658 0.6% 2,076 0.6 % 4.60x Drug Stores and Pharmacies 8 23,970 0.5% 1,647 0.4 % 1.46x Legal Services 5 11,362 0.2% 1,009 0.3 % 2.08x General Merchandise 3 7,492 0.1% 555 0.2 % 1.81x Home Furnishings 5 37,215 0.7% 2,854 0.8 % 0.80x Dollar Stores 3 2,971 0.1% 187 0.1 % 3.15x Other 4 28,748 0.6% 2,159 0.5 % 4.33x Vacant 15 22,677 0.4% - - % - Total 809$ 5,207,062 100.0%$ 369,423 100.0 % 2.16x (1) Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.
(2) As of
carrying value of$8,248 and annual minimum rent of$789 classified as held for sale. (3) Each of our leases provides for payment to us of minimum rent,
respectively. Certain of these minimum payment amounts are secured by full
or limited guarantees. Annualized minimum rent amounts represent cash rent
amounts due to us and exclude adjustments, if any, to record scheduled
rent changes under certain of our leases, the deferred rent obligations
payable to us under our leases with TA, and the estimated future payments
to us under our TA leases for the cost of removing underground storage
tanks at our travel centers on a straight-line basis, or any reimbursement
of expenses paid by us.
(4) See page 36 for our definition of coverage.
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As ofJune 30, 2020 , lease expirations at our net lease properties by year are as follows. Percent of Total Annualized Cumulative % of Annualized Minimum Minimum Rent Total Minimum Year(1) Square Feet Rent Expiring (2) Expiring Rent Expiring 2020 166,158 $ 2,555 0.7% 0.7% 2021 555,447 5,852 1.6% 2.3% 2022 853,374 10,824 2.9% 5.2% 2023 150,293 2,512 0.7% 5.9% 2024 688,836 10,018 2.7% 8.6% 2025 438,433 8,426 2.3% 10.9% 2026 868,969 9,808 2.7% 13.6% 2027 1,198,874 15,539 4.2% 17.8% 2028 512,639 7,430 2.0% 19.8% 2029 1,311,612 47,322 12.8% 32.6% 2030 184,368 3,908 1.1% 33.7% 2031 1,397,033 49,723 13.4% 47.1% 2032 1,125,517 50,438 13.6% 60.7% 2033 1,100,723 53,194 14.4% 75.1% 2034 134,640 4,504 1.2% 76.3% 2035 2,316,553 80,764 21.9% 98.2% 2036 320,792 3,537 1.0% 99.2% 2037 - - 0.0% 99.2% 2038 10,183 416 0.1% 99.3% 2039 185,437 2,501 0.7% 100.0% 2040 1,739 152 0.0% 100.0% Total 13,521,620 $ 369,423 100%
(1) The year of lease expiration is pursuant to contract terms.
(2) As of
minimum rent of
As ofJune 30, 2020 , shown below is the list of our top ten states where our net lease properties were located. No other state represents more than 3% of our net lease annual minimum rents. Percent of Total Annualized Minimum State Square Feet Annualized Minimum Rent Rent Texas 1,205,393 $ 31,985 8.7% Illinois 1,019,885 26,147 7.1% Ohio 1,307,589 26,033 7.0% California 399,045 20,981 5.7% Indiana 637,239 18,034 4.9% Pennsylvania 642,533 17,821 4.8% Arizona 476,651 16,977 4.6% Georgia 597,248 16,872 4.6% Florida 538,130 15,852 4.3% New Mexico 246,478 11,012 3.0% Other 6,658,702 167,709 45.3% 13,728,893 $ 369,423 100.0% 49
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Related Person Transactions We have relationships and historical and continuing transactions withRMR 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 byRMR LLC pursuant to our business and property management agreements withRMR LLC ;RMR Inc. is the managing member ofRMR LLC ;Adam Portnoy , the Chair of ourBoard of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder ofABP Trust , which is the controlling shareholder ofRMR Inc. , a managing director, president and chief executive officer ofRMR Inc. , an officer and employee ofRMR 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 ofRMR LLC and a director of Sonesta; and our Secretary also serves as a managing director and executive officer ofRMR Inc. and a director of Sonesta. We also have relationships and historical and continuing transactions with other companies to whichRMR LLC or its subsidiaries provide management services and which may have trustees, directors and officerswho are also trustees, directors or officers of us,RMR LLC orRMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies. For example: TA, is our former subsidiary and our largest tenant, and Sonesta, is one of our hotel managers and we own an approximate 34% equity interest in Sonesta. For further information about these and other such relationships and related person transactions, see Notes 6, 9 and 10 to our Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with theSEC . In addition, see the section captioned "Risk Factors" of our 2019 Annual Report and in this Quarterly Report on Form 10-Q for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with theSEC and copies of certain of our agreements with these related persons, including our business and property management agreements withRMR LLC and our various agreements with TA and Sonesta, are available as exhibits to our filings with theSEC and accessible at theSEC's website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to whichRMR LLC or its subsidiaries provide management services. Non-GAAP Financial Measures We present certain "non-GAAP financial measures" within the meaning of applicableSEC rules, including funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs. Funds From Operations and Normalized Funds From Operations We calculate FFO and Normalized FFO, as shown below. FFO is calculated on the basis defined byThe National Association of Real Estate Investment Trusts , which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the item shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by ourBoard of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. 50
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Our calculations of FFO and Normalized FFO for the three and six months endedJune 30, 2020 and 2019 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts). For the Three Months Ended For the Six Months Ended June June 30, 30, 2020 2019 2020 2019 Net income (loss)$ (37,349 ) $
8,782
Depreciation and amortization Add (Less): expense 127,427 99,196 255,353 198,561 (Gain) loss on sale of real estate (1) 2,853 - 9,764 (159,535 ) Loss on asset impairment (2) 28,514 - 45,254 - Unrealized (gains) and losses on equity securities, net (3) (3,848 ) 60,788 1,197 39,811 Adjustments to reflect the entity's share of FFO attributable to an investee (4) 327 - 439 - FFO 117,924 168,766 241,008 313,406 Loss on early extinguishment of Add (less): debt (5) 6,970 - 6,970 - Gain on insurance settlement, net of tax (6) (46,736 ) - (46,736 ) - Normalized FFO$ 78,158 $ 168,766 $ 201,242 $ 313,406 Weighted average shares outstanding (basic) 164,382 164,284 164,376 164,281 Weighted average shares outstanding (diluted) (7) 164,382 164,326 164,376 164,324
Basic and diluted per common share amounts:
Net income (loss)$ (0.23 ) $ 0.05 $ (0.43 ) $ 1.43 FFO$ 0.72 $ 1.03 $ 1.47 $ 1.91 Normalized FFO$ 0.48 $ 1.03 $ 1.22 $ 1.91 Distributions declared per share$ 0.01 $ 0.54 $ 0.55 $ 1.07
(1) We recorded a
months ended
properties, a
ended
properties and a
months ended
centers.
(2) We recorded a
ended
and four net lease properties to their estimated fair value and a
loss on asset impairment during the six months endedJune 30, 2020 to reduce the carrying value of 17 hotel properties and six net lease properties to their estimated fair value. (3) Unrealized gains and losses on equity securities, net represent the
adjustment required to adjust the carrying value of our former investment
in
of the end of the period. We sold our shares of
(4) Represents adjustments to reflect our proportionate share of FFO related
to our equity investment in Sonesta. (5) We recorded a$6,970 loss on early extinguishment of debt during the three and six months endedJune 30, 2020 related to our repurchase of$350,000 principal amount of our$400,000 of 4.25% senior notes due 2021
for an aggregate purchase price of
(6) We recorded a
ended
in
to increase the building basis of our
insurance proceeds. We also recorded a
result of the book to tax difference related to this accounting in the three months endedJune 30, 2020 . (7) Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards. 51
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