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What changed in Service Properties Trust's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Service Properties Trust's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+463 added−530 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Service Properties Trust's 2023 10-K

463 paragraphs added · 530 removed · 384 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

105 edited+17 added−36 removed314 unchanged
Biggest changeIn implementing our acquisition strategy, we consider a range of factors relating to proposed property purchases including some or all of the following: • Historical and projected cash flows; • The competitive market environment and the current or potential market position of each property; • The tax and regulatory circumstances of the market area in which the property is located; • The availability of a qualified manager or tenant; • The financial strength of the proposed manager or tenant; • The property’s design, construction quality, physical condition and age and expected capital expenditures that may be needed to maintain the property or to enhance its operation; • The size of the property; • The location, type of property, market conditions and demographics of the area where it is located and surrounding demand generators; • The estimated replacement cost, capital improvement requirements and proposed acquisition price of the property; • Our weighted average long term cost of capital compared to projected returns we may realize by owning the property; • The reputation of any operator with which the property is or may become affiliated; • The amount and type of financial support available from the proposed manager or lessee; • The level of services and amenities offered at the property; • The proposed management agreement or lease terms; • The brand under which the property operates or is expected to operate; • The strategic fit of the property or investment with the rest of our portfolio and our own plans; • The possibility that technological changes may affect the business operated at the property; • Other possible uses of the property if the current use is no longer viable; and • The existence of alternative sources, uses or needs for our capital and our debt leverage. 5 Table of Contents In determining the competitive position of a property, we examine the proximity and convenience of the property to its expected customer base, the number and characteristics of competitive properties within the property’s market area and the existence of barriers to entry for competitive properties within that market, including site availability and zoning restrictions.
Biggest changeIn implementing our acquisition strategy, we consider a range of factors relating to proposed property purchases including some or all of the following: • Historical and projected cash flows; • The estimated replacement cost, capital improvement requirements and proposed acquisition price of the property; • The proposed management agreement or lease terms; • The brand under which the property operates or is expected to operate; • The competitive market environment and the current or potential market position of each property; 4 Table of Contents • The availability of a qualified and reputable manager or tenant; • The financial strength of the proposed manager or tenant; • The property’s design, construction quality, physical condition and age and expected capital expenditures that may be needed to maintain the property or to enhance its operation; • The size of the property; • The location, type of property, market conditions and demographics of the area where it is located and surrounding demand generators; • Our weighted average long term cost of capital compared to projected returns we may realize by owning the property; • The tax and regulatory circumstances of the market area in which the property is located; • The amount and type of financial support available from the proposed manager or lessee; • The level of services and amenities offered at the property; • The strategic fit of the property or investment with the rest of our portfolio and our own plans; • The possibility that technological changes may affect the business operated at the property; • Other possible uses of the property if the current use is no longer viable; and • The existence of alternative sources, uses or needs for our capital and our debt leverage.
Substantially all our travel centers are full service sites located at or near an interstate highway exit and offer fuel and non-fuel products and services 24 hours per day, 365 days per year. Our typical travel center includes over 25 acres of land with parking for approximately 200 tractor trailers and approximately 100 cars.
Substantially all of our travel centers are full service sites located at or near an interstate highway exit and offer fuel and non-fuel products and services 24 hours per day, 365 days per year. Our typical travel center includes over 25 acres of land with parking for approximately 200 tractor trailers and approximately 100 cars.
For further information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Capital Resources” included in Part II, Item 7 of this Annual Report on Form 10-K and Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Capital Resources” included in Part II, Item 7 of this Annual Report on Form 10-K and Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
As an owner and landlord of net lease retail properties, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours and are in the same markets in which our properties are located.
As an owner and landlord of retail net lease properties, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours and are in the same markets in which our properties are located.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; 10 Table of Contents • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the IRC) of any class of our shares; • a U.S. expatriate; • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the IRC) of any class of our shares; • a U.S. expatriate; • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or 10 Table of Contents • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid. • If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. 12 Table of Contents • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid. • If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest 12 Table of Contents regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
In order for this to be the case, the manager operating the 19 Table of Contents leased property on behalf of the applicable TRS must be an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the IRC, and the hotels leased to the TRS must be “qualified lodging facilities” within the meaning of Section 856(d)(9)(D) of the IRC.
In order for this to be the case, the manager operating the leased property on behalf of the applicable TRS must be an “eligible independent contractor” within the meaning of Section 856(d)(9)(A) of the IRC, and the hotels leased to the TRS must be “qualified lodging facilities” within the meaning of Section 19 Table of Contents 856(d)(9)(D) of the IRC.
To the extent of our income and gains in a taxable year that are subject to the built-in gains tax, net of any taxes paid on such income and gains with respect to that taxable year, our taxable dividends paid in the following year will be potentially eligible for taxation to 21 Table of Contents noncorporate U.S. shareholders at the preferential tax rates for “qualified dividends” as described below under the heading “—Taxation of Taxable U.S.
To the extent of our 21 Table of Contents income and gains in a taxable year that are subject to the built-in gains tax, net of any taxes paid on such income and gains with respect to that taxable year, our taxable dividends paid in the following year will be potentially eligible for taxation to noncorporate U.S. shareholders at the preferential tax rates for “qualified dividends” as described below under the heading “—Taxation of Taxable U.S.
However, because we are not generally 22 Table of Contents subject to federal income tax on the portion of our “real estate investment trust taxable income” distributed to our shareholders, dividends on our shares generally are not eligible for these preferential tax rates, except that any distribution of C corporation earnings and profits and taxed built-in gain items will potentially be eligible for these preferential tax rates.
However, because we are not generally subject to federal income tax on the portion of our “real estate investment trust taxable income” distributed to our shareholders, dividends on our shares generally are not eligible for these preferential tax rates, except that any distribution of C corporation 22 Table of Contents earnings and profits and taxed built-in gain items will potentially be eligible for these preferential tax rates.
To achieve these objectives, we seek to maintain a strong capital base of shareholders’ equity; invest in high quality properties operated by qualified operating companies; use moderate debt leverage to fund additional investments which increase cash flows from operations; structure investments which generate a return in excess of our capital costs and provide an opportunity to participate in operating growth at our properties; when market conditions permit, refinance debt with additional equity or long term debt; and pursue diversification so that our cash flows from operations come from diverse properties.
To achieve these objectives, we seek to maintain a strong capital base of shareholders’ equity; invest in high quality properties operated by qualified operating companies; use moderate debt leverage to fund additional investments which increase cash flows from operations; structure investments which generate a return in excess of our capital costs and provide an opportunity to participate in operating growth at our properties; when market conditions permit, refinance maturing debt with additional equity or long term debt; and pursue diversification so that our cash flows from operations come from diverse properties.
We may make protective TRS elections with respect to any subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.
We expect to make protective TRS elections with respect to any subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.
While we have historically focused on the acquisition of upscale limited service, extended stay and full service hotel properties, full service travel centers and necessity based retail properties, we consider acquisitions in all segments of the hospitality, necessity based retail industries and other net leased properties.
While we have historically focused on the acquisition of upscale limited service, extended stay and full service hotel properties, full service travel centers and necessity based retail net lease properties, we consider acquisitions in all segments of the hospitality, necessity based retail industries and other net leased properties.
Section 856(a) of the IRC defines a REIT as a corporation, trust or association: (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) that would be taxable, but for Sections 856 through 859 of the IRC, as a domestic C corporation; (4) that is not a financial institution or an insurance company subject to special provisions of the IRC; (5) the beneficial ownership of which is held by 100 or more persons; (6) that is not “closely held,” meaning that during the last half of each taxable year, not more than 50% in value of the outstanding shares are owned, directly or indirectly, by five or fewer “individuals” (as defined in the IRC to include specified tax-exempt entities); and (7) that meets other tests regarding the nature of its income and assets and the amount of its distributions, all as described below.
Section 856(a) of the IRC defines a REIT as a corporation, trust or association: (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) that would be taxable, but for Sections 856 through 859 of the IRC, as a domestic C corporation; (4) that is not a financial institution or an insurance company subject to special provisions of the IRC; 13 Table of Contents (5) the beneficial ownership of which is held by 100 or more persons; (6) that is not “closely held,” meaning that during the last half of each taxable year, not more than 50% in value of the outstanding shares are owned, directly or indirectly, by five or fewer “individuals” (as defined in the IRC to include specified tax-exempt entities); and (7) that meets other tests regarding the nature of its income and assets and the amount of its distributions, all as described below.
Our principal internal growth strategy is to apply asset management strategies to aid our hotel operators in improving performance and operating income of our hotel properties. We actively manage our net lease portfolio by engaging in early lease renewal discussions to maintain occupancy and grow rental income, monitoring the credit of our tenants and identifying asset recycling opportunities.
Our principal internal growth strategy is to apply asset management strategies to aid our hotel operators in improving performance and operating income of our hotel properties. We actively manage our net lease portfolio by engaging in early lease renewal discussions to maintain occupancy and grow rental income while simultaneously monitoring the credit of our tenants and identifying asset recycling opportunities.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 1995 through 2022 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 1995 through 2023 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
We currently make decisions to dispose of properties based on factors including, but not limited to, the following: • The property’s current and expected future performance; • The competition and demand generators near the property; • The proposed or expected sale price; • The age and capital required to maintain the property; • The strategic fit of the property with the rest of our portfolio and with our plans; • The manager’s or tenant’s desire to operate or cease operation of the property; • The remaining agreement term of the property, including the likelihood of a manager or tenant exercising any renewal options; 6 Table of Contents • Our intended use of the proceeds we may realize from the sale of a property; • The existence of alternative sources, uses or needs for our capital and our debt leverage; and • The tax implications to us and our shareholders of any proposed disposition.
We currently make decisions to dispose of properties based on factors including, but not limited to, the following: • The property’s current and expected future performance; • The proposed or expected sale price; • The age and capital required to maintain the property; • The competition and demand generators near the property; • Our intended use of the proceeds we may realize from the sale of a property; • The strategic fit of the property with the rest of our portfolio and with our plans; • The manager’s or tenant’s desire to operate or cease operation of the property; • The remaining agreement term of the property, including the likelihood of a manager or tenant exercising any renewal options; • The existence of alternative sources, uses or needs for our capital and our debt leverage; and • The tax implications to us and our shareholders.
Convertible mortgages are similar to equity participation because they permit lenders to either participate in increasing revenues from the property or convert some or all of that mortgage into equity ownership interests. At December 31, 2022, we owned no convertible mortgages or joint venture interests.
Convertible mortgages are similar to equity participation because they permit lenders to either participate in increasing revenues from the property or convert some or all of that mortgage into equity ownership interests. At December 31, 2023, we owned no convertible mortgages or joint venture interests.
The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented. • In addition, “rents from real property” includes both charges we receive for services customarily rendered in connection with the rental of comparable real property in the same geographic area, even if the charges are separately stated, as well as charges we receive for services provided by our TRSs when the charges are not separately stated.
The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented. 16 Table of Contents • In addition, “rents from real property” includes both charges we receive for services customarily rendered in connection with the rental of comparable real property in the same geographic area, even if the charges are separately stated, as well as charges we receive for services provided by our TRSs when the charges are not separately stated.
In addition, a de minimis amount of noncustomary 16 Table of Contents services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property. • If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property;” if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.
In addition, a de minimis amount of noncustomary services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property. • If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property;” if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.
As of December 31, 2022, all of our hotels were leased to our TRSs and managed by third parties. Any income realized by a TRS in excess of the rent paid to us by the subsidiary is subject to income tax at customary corporate rates.
As of December 31, 2023, all of our hotels were leased to our TRSs and managed by third parties. Any income realized by a TRS in excess of the rent paid to us by the subsidiary is subject to income tax at customary corporate rates.
The portfolio is leased to tenants that include travel centers, quick service and casual dining restaurants, movie theaters, health and fitness centers, grocery stores, automotive parts and services and other businesses in service-oriented and necessity-based industries across 42 states.
The portfolio is leased to tenants that include travel centers, quick service and casual dining restaurants, health and fitness centers, movie theaters, grocery stores, automotive parts and services and other businesses in service-focused and necessity-based industries across 42 states.
Under this approach, the non-U.S. shareholder would be able to offset as a credit against its resulting U.S. federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S. shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S. shareholder’s actual U.S. federal income tax liability on such deemed distribution.
Under this approach, the non-U.S. shareholder would be able to offset as a credit against its resulting U.S. federal income tax liability its proportionate share of the tax paid by us on the undistributed capital 25 Table of Contents gain treated as distributed to the non-U.S. shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S. shareholder’s actual U.S. federal income tax liability on such deemed distribution.
Other than sales of foreclosure property, any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business, together known as dealer gains, may be treated 17 Table of Contents as income from a prohibited transaction that is subject to a penalty tax at a 100% rate.
Other than sales of foreclosure property, any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business, together known as dealer gains, may be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate.
Fiduciaries of an ERISA Plan must consider whether: • their investment in our shares or other securities satisfies the diversification requirements of ERISA; • the investment is prudent in light of possible limitations on the marketability of our shares; • they have authority to acquire our shares or other securities under the applicable governing instrument and Title I of ERISA; and • the investment is otherwise consistent with their fiduciary responsibilities.
Fiduciaries of an ERISA Plan must consider whether: • their investment in our shares or other securities satisfies the diversification requirements of ERISA; 27 Table of Contents • the investment is prudent in light of possible limitations on the marketability of our shares; • they have authority to acquire our shares or other securities under the applicable governing instrument and Title I of ERISA; and • the investment is otherwise consistent with their fiduciary responsibilities.
Under these agreements, neither the operators nor their affiliates are usually restricted from operating other brands of hotels in the market areas of any of our hotels, and after such period of time, the operators and their affiliates may also compete with our hotels by opening, managing or franchising additional hotels under the same brand name in direct competition with our hotels.
Under these agreements, neither the 7 Table of Contents operators nor their affiliates are usually restricted from operating other brands of hotels in the market areas of any of our hotels, and after such period of time, the operators and their affiliates may also compete with our hotels by opening, managing or franchising additional hotels under the same brand name in direct competition with our hotels.
No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders. Distributions in excess of our current or accumulated earnings and profits generally are treated for federal income tax purposes as returns of capital to the extent of a recipient shareholder’s basis in our shares, and will reduce this basis.
No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders. Distributions in excess of our current or accumulated earnings and profits generally are treated for federal income 11 Table of Contents tax purposes as returns of capital to the extent of a recipient shareholder’s basis in our shares, and will reduce this basis.
We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the 28 Table of Contents transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.
We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.
Further, if in comparison to an arm’s length transaction, a third-party tenant has overpaid rent to the REIT in exchange for underpaying the TRS for services rendered, and if the REIT has not adequately compensated the TRS for services provided to or on behalf of the third-party 15 Table of Contents tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS.
Further, if in comparison to an arm’s length transaction, a third-party tenant has overpaid rent to the REIT in exchange for underpaying the TRS for services rendered, and if the REIT has not adequately compensated the TRS for services provided to or on behalf of the third-party tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS.
Our Relationship with Sonesta . As of December 31, 2022, we owned (directly and indirectly through one of our TRSs) approximately 34% of the outstanding common shares of Sonesta. We have not elected to treat Sonesta as a TRS, and it is not otherwise an automatic TRS because no TRS of ours owns more than 35% of Sonesta.
Our Relationship with Sonesta . As of December 31, 2023, we owned (directly and indirectly through one of our TRSs) 34% of the outstanding common shares of Sonesta. We have not elected to treat Sonesta as a TRS, and it is not otherwise an automatic TRS because no TRS of ours owns more than 35% of Sonesta.
Our net lease tenants are responsible to maintain the properties including structural and non-structural components. Certain of our net lease properties also have future rent increases included in the leases either at a fixed amount or based on changes in the consumer price index, or 3 Table of Contents CPI.
Our net lease tenants are responsible to maintain the properties including structural and non-structural components. Certain of our net lease properties also have future rent increases included in the leases either at a fixed amount or based on changes in the consumer price index, or CPI.
We expect most of our acquisition efforts will focus on hotel and net lease based properties; however, we may consider acquiring other types of properties, as well. An important part of our acquisition strategy is to identify and select or create qualified, experienced and financially stable operators.
We expect most of our acquisition efforts will focus on hotel and net lease based properties; however, we may also consider acquiring other types of properties. An important part of our acquisition strategy is to identify and select or create qualified, experienced and financially stable operators.
In contrast, for purposes of the distribution requirements discussed below, we must take into account as a partner our share of the partnership’s income as determined under the general federal income tax rules governing partners and partnerships under Subchapter K of the IRC. Subsidiary REITs.
In contrast, for purposes of the distribution requirements discussed below, we must take into account as a partner our share of the 14 Table of Contents partnership’s income as determined under the general federal income tax rules governing partners and partnerships under Subchapter K of the IRC. Subsidiary REITs.
The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable.
The regulation further provides that, where a security is part of an offering in which the 28 Table of Contents minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable.
We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or the SEC.
We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 9 Table of Contents 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the SEC.
The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment 27 Table of Contents meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.
The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.
We may invest in the securities of other entities for the purpose of exercising control or otherwise, make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase our securities. We may not achieve some or all of our investment objectives. Disposition Policies.
We may invest in the securities of other entities for the purpose of exercising control or otherwise, make loans 5 Table of Contents to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase our securities. We may not achieve some or all of our investment objectives. Disposition Policies.
Each class of our shares has been listed on a U.S. national securities exchange; however, we 24 Table of Contents cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed. Distributions .
Each class of our shares has been listed on a U.S. national securities exchange; however, we cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed. Distributions .
Whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding each particular transaction.
Whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or 17 Table of Contents business is a question of fact that depends on all the facts and circumstances surrounding each particular transaction.
We cannot be sure that arrangements involving our TRSs will not result in the imposition of one or more of these restrictions or sanctions, but we do not believe that we or our TRSs are or will be subject to these impositions. Income Tests.
We cannot be sure that arrangements involving our TRSs will not result in the imposition of one or more of these restrictions or sanctions, but we do not believe that we or our TRSs are or will be subject to these impositions. 15 Table of Contents Income Tests.
Owner's priority returns under our Hyatt and Radisson hotel agreements are partially supported by limited guarantees. • Long Terms. The weighted average term remaining for our hotel agreements (weighted by our investments as of December 31, 2022) is 13.9 years, without giving effect to any renewal options our managers may have. • Pooled Agreements.
Owner’s priority returns under our Hyatt and Radisson hotel agreements are partially supported by limited guarantees. • Long Terms. The weighted average term remaining for our hotel agreements (weighted by owner’s priority as of December 31, 2023) is 12.9 years, without giving effect to any renewal options our managers may have. • Pooled Agreements.
In general, our 765 net lease properties are subject to “triple net” leases where the tenant is generally responsible for the payment of operating expenses and capital expenditures of the property during the lease term. Our tenants are responsible to pay us fixed annual rents on a monthly, quarterly or semi-annual basis.
In general, our 752 net lease properties are subject to “triple net” leases where the tenant is generally responsible for the payment of operating expenses and capital expenditures of the property during the lease term. Our tenants are responsible to 3 Table of Contents pay us fixed annual rents on a monthly, quarterly or semi-annual basis.
As of December 31, 2022 , 196 of our hotels are operated by Sonesta. Sonesta faces competition from larger, well known hotel companies. Competitive pressures from these companies and others could negatively impact Sonesta’s ability to pay our owner's priority returns.
As of December 31, 2023 , 195 of our hotels are operated by Sonesta. Sonesta faces competition from larger, well known hotel companies. Competitive pressures from these companies and others could negatively impact Sonesta’s ability to pay our owner’s priority returns.
We have no employees. We rely on our managers, including RMR, to hire, train, and develop a workforce that meets the needs of our business, contributes positively to our society and helps reduce our impact on the natural environment. 9 Table of Contents • Corporate Citizenship.
We have no employees. We rely on our managers, including RMR and Sonesta, to hire, train, and develop a workforce that meets the needs of our business, contributes positively to our society and helps reduce our impact on the natural environment. • Corporate Citizenship.
Generally, manager renewal options for each portfolio agreement of our hotel properties may only be exercised on an all or none basis and not for separate properties. Our agreements with Marriott and Sonesta for hotels that we expect to sell allows us to terminate the agreement with respect to individual properties as they are sold.
Generally, manager renewal options for each portfolio agreement of our hotel properties may only be exercised on an all or none basis and not for separate properties. Our agreement with Radisson for hotels that we may sell allows us to terminate the agreement with respect to individual properties as they are sold.
Our hotel managers have the ability to earn incentive management fees generally based on excess cash flows after payment of hotel operating expenses, payment of base management fees, funding of the required FF&E reserve, if any, payment of our owner's priority returns, reimbursement of certain advances and in certain instances, replenishment of the security deposit or guarantee.
Our hotel managers have the ability to earn incentive management fees generally based on excess cash flows after payment of hotel operating expenses, payment of base management fees, funding of the required FF&E reserve, if any, payment of our owner’s priority returns, reimbursement of certain advances and in certain instances, replenishment of the guarantees.
Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it comes within an enumerated exempt category, distributions or proceeds on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS.
Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it comes within an enumerated exempt category, distributions or proceeds on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS. 26 Table of Contents Distributions on our shares to a non-U.S. shareholder during each calendar year and the amount of tax withheld, if any, will generally be reported to the non-U.S. shareholder and to the IRS.
For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities,” “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” included in Part II, Item 7 of this Annual Report on Form 10-K. • Investments in Human Capital.
For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities,” “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters,” included in Part I, Item 1A of this Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” included in Part II, Item 7 of this Annual Report on Form 10-K.
As of December 31, 2022, we had two operating segments, hotel investments and net lease investments.
As of December 31, 2023, we had two operating segments, hotel investments and net lease investments.
Our hotel operating agreements have initial terms expiring between 2023 and 2037. Each of these agreements is for between one and 194 of our hotels. The principal features of our hotel agreements are as follows: • Owner’s Priority Returns.
Our hotel operating agreements have initial terms expiring between 2026 and 2037. Each of these agreements is for between one and 195 of our hotels. The principal features of our hotel agreements are as follows: • Owner’s Priority Returns.
We have in the past considered, and may in the future consider, the possibility of entering into mergers or strategic combinations with other companies. Our principal goal of any such transactions will be to increase our cash flows from operations and to further diversify our revenue sources.
We have in the past considered, and may in the future consider, the possibility of entering into mergers or strategic combinations with other companies. Our principal goal of any such transactions will be to increase our cash flows from operations and to further diversify our revenue sources. We own 34% of the outstanding common stock of Sonesta.
Our environmental sustainability and community engagement strategies are primarily implemented by our operators and focus on a complementary set of objectives, including the following: • Responsible Investment: We seek to invest capital in our properties that both improves environmental performance and enhances asset value.
Our sustainability and community engagement strategies, including those implemented by our hotel managers, focus on a complementary set of objectives, including the following: • Responsible Investment: We seek to invest capital in our properties that both improves environmental performance and enhances asset value.
Our Board is comprised of 29% women and 14% members of underrepresented communities. RMR is an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status.
Our Board of Trustees is comprised of 25% women and 25% members of under-represented communities. RMR is an equal opportunity employer, with all qualified applicants receiving consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability or protected veteran status.
For more information about our hotel agreements and net lease portfolio, see Notes 5 and 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 2 Table of Contents Principal Management Agreement or Lease Features As of December 31, 2022, our 238 hotels were managed by subsidiaries of Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, Marriott International, Inc., or Marriott, and InterContinental Hotels Group, plc, or IHG.
For more information about our hotel agreements and net lease portfolio, see Note 4 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 2 Table of Contents Principal Management Agreement or Lease Features As of December 31, 2023, our 221 hotels were managed by subsidiaries of Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, and InterContinental Hotels Group, plc, or IHG.
(2) Represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from reserves established for the regular refurbishment of our hotels, or FF&E, reserves funded from hotel operations that do not result in increases in our owner’s priority returns or rents. 1 Table of Contents Net Lease Portfolio As of December 31, 2022, we owned 765 service-oriented retail properties with 13,374,325 square feet.
(2) Represents the historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from reserves established for the regular refurbishment of our hotels, or FF&E reserves, funded from hotel operations that do not result in increases in our owner’s priority returns or rents. 1 Table of Contents Net Lease Portfolio As of December 31, 2023, we owned 752 service-focused retail net lease properties with an aggregate of 13,341,172 square feet.
During the acquisition of properties, RMR assesses, among other things, environmental sustainability opportunities and climate related risks as part of the due diligence process. • Environmental Stewardship: We seek to improve the environmental footprint of our properties, including by reducing energy consumption and water usage, especially when doing so may reduce operating costs and enhance the properties’ competitive position.
As part of our property acquisition due diligence and annual budgeting processes, RMR assesses, among other things, environmental sustainability opportunities and physical and policy driven climate related risks. • Environmental Stewardship: We seek to improve the environmental footprint of our properties, including by reducing energy consumption and water usage, especially when doing so may reduce operating costs and enhance the properties’ competitive position.
Certain of our lease agreements also require payment of percentage rent to us based on increases in certain gross property revenues over threshold amounts. Certain of our net lease properties, including all our TA properties, are subject to pooling agreements and include all or none renewal options. TA is our largest tenant.
Certain of our lease agreements also require payment of percentage rent to us based on increases in certain gross property revenues over threshold amounts. Certain of our net lease properties, including all our TravelCenters of America Inc., or TA, properties, include the right to repool properties, and include all or none renewal options. TA is our largest tenant.
We or our tenants have entered into arrangements for operation of our properties. Under the IRC, we may lease our hotels to one of our “taxable REIT subsidiaries,” as defined in Section 856(l) of the IRC, or TRSs, if the hotel is managed by a third party.
We or our tenants have entered into arrangements for the operation of our properties. Under the United States Internal Revenue Code of 1986, as amended, or the IRC, we may lease our hotels to one of our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, if the hotel is managed by a third party.
John G. Murray, our other Managing Trustee and our former President and Chief Executive Officer, was appointed the president and chief executive officer of Sonesta, effective April 1, 2022. Mr. Murray also serves as an officer and employee of RMR. Our day to day operations are conducted by RMR.
John G. Murray, our other Managing Trustee and our former President and Chief Executive Officer, also serves as an officer and employee of RMR and is the chief executive officer of Sonesta. Our day to day operations are conducted by RMR.
We seek to be a responsible corporate citizen and to strengthen the communities in which we own properties. Our manager, RMR, regularly encourages its employees to engage in a variety of charitable and community programs, including participation in a company-wide service day and charitable giving matching program. • Diversity & Inclusion. We value a diversity of backgrounds, experience and perspectives.
We seek to be a responsible corporate citizen and to strengthen the communities in which we own properties. Our managers regularly encourage their employees to engage in a variety of charitable and community programs, including participation in company-wide service days and charitable gift giving matching programs. • Diversity and Inclusion. We value a diversity of backgrounds, experience and perspectives.
Instead, we expect to repay our debts, invest in our properties and fund acquisitions and development or redevelopment efforts with borrowings under our revolving credit facility, proceeds from equity or debt securities we may issue (domestically or in foreign markets), including in subsidiaries, proceeds from our asset sales, or retained cash from operations that may exceed distributions paid.
Instead, we expect to repay our debts, invest in our properties and fund acquisitions and development or redevelopment efforts with borrowings under our revolving credit facility, proceeds from equity or debt securities we may issue (domestically or in foreign markets), including in subsidiaries, proceeds from our asset sales, or retained cash from operations that may exceed distributions paid. 6 Table of Contents We believe our capital structure provides us with financial flexibility and we have historically had access to capital markets.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of February 22, 2024. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
As of December 31, 2022, our net lease portfolio was occupied by 180 tenants with a weighted (by annual minimum rent) lease term of 9.6 years, operating under 138 brands in 21 distinct industries.
As of December 31, 2023, our net lease portfolio was occupied by 175 tenants with a weighted average (by annual minimum rent) lease term of 8.8 years, operating under 137 brands in 21 distinct industries.
RMR is an alternative asset management company that is focused on commercial real estate and related businesses. RMR or its subsidiaries also acts as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses.
RMR is an alternative asset management company that is focused on commercial real estate and related businesses. RMR or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses. As of February 22, 2024, the executive officers of RMR are: Adam D.
Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office. 26 Table of Contents Non-U.S. financial institutions and other non-U.S. entities are subject to diligence and reporting requirements for purposes of identifying accounts and investments held directly or indirectly by U.S. persons.
Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.
If as expected our shares are not USRPIs, then a non-U.S. shareholder’s gain on the sale of these shares generally will not be subject to U.S. federal income taxation or withholding.
If as expected our shares are not USRPIs, then a non-U.S. shareholder’s gain on the sale of these shares generally will not be subject to U.S. federal income taxation or withholding. We expect that our shares will not be USRPIs because one or both of the following exemptions will be available at all times.
Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the REIT asset tests outlined above on a continuing basis beginning with our first taxable year as a REIT. Our Relationship with TA .
Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the REIT asset tests outlined above on a continuing basis beginning with our first taxable year as a REIT. Our Relationship with TA. Prior to the TA Merger, we owned a significant percentage (but less than 10%) of the outstanding common shares of TA.
Our ability to incur additional debt is subject to meeting the required covenant levels and subject to the provisions of our revolving credit facility and senior notes indentures.
Our ability to incur additional debt is subject to meeting the required covenant levels and subject to the provisions of our debt agreements.
See Notes 4 and 5 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information on our properties held for sale and these agreements. • Property Maintenance.
See Note 4 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information on these leases.
Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our $800 million revolving credit facility, our unsecured senior notes indentures and their supplements and our secured borrowings contain financial covenants which, among other things, restrict our ability to incur additional indebtedness and require us to maintain certain financial ratios.
Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our debt agreements contain financial covenants which, among other things, restrict our ability to incur additional indebtedness and require us to maintain certain financial ratios.
Our hotel managers are committed to racial equity and fostering a culture of diversity and inclusion. Insurance. We generally have insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire, flood, earthquake, extended coverage and rental or business interruption losses.
Insurance. We generally have insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire, flood, earthquake, extended coverage and rental or business interruption losses.
Relief provisions under the IRC may allow us to continue to qualify for taxation as a REIT even if we fail to comply with various REIT requirements, all as discussed in more detail below.
Relief provisions under the IRC may allow us to continue to qualify for taxation as a REIT even if we fail to comply with various REIT requirements, all as discussed in more detail below. However, it is impossible to state whether in any particular circumstance we would be entitled to the benefit of these relief provisions.
We expect that a non-U.S. shareholder’s receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business.
If you are a non-U.S. shareholder, we urge you to consult your own tax advisor to determine the impact of U.S. federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares. 24 Table of Contents We expect that a non-U.S. shareholder’s receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business.
We believe the scale, geographic diversity, strategic locations and the variety of service levels of our hotels gives us a competitive advantage. Our hotel properties are typically located in urban or high density suburban locations in the vicinity of major demand generators such as large suburban office parks, urban centers, airports, medical or educational facilities or major tourist attractions.
Our hotel properties are typically located in urban or high density suburban locations in the vicinity of major demand generators such as urban centers, airports, medical or educational facilities, major tourist attractions or large suburban office parks.
Our declaration of trust and bylaws generally disallow transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.
In this regard, prior to the TA Merger, we owned close to, but less than, 10% of the outstanding common shares of TA. Our declaration of trust and bylaws generally disallow transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.
Accordingly, from and after January 31, 2007 we expect that the rental income we have received and will receive from TA and its subsidiaries has been and will be “rents from real property” under Section 856(d) of the IRC, and therefore qualifying income under the 75% and 95% gross income tests described above.
Commencing with our 2007 taxable year and continuing through to the present, we expect that the rental income we have received and will receive from TA and its subsidiaries has constituted and will continue to constitute “rents from real property” under Section 856(d) of the IRC, and therefore qualifying income under the 75% and 95% gross income tests described above.
These distributions may include cash distributions, in kind distributions of property, and deemed or constructive distributions resulting from capital market activities. The U.S. federal income tax treatment of our distributions will vary based on the status of the recipient shareholder as more fully described below under the headings “—Taxation of Taxable U.S. Shareholders,” “—Taxation of Tax-Exempt U.S.
The U.S. federal income tax treatment of our distributions will vary based on the status of the recipient shareholder as more fully described below under the headings “—Taxation of Taxable U.S. Shareholders,” “—Taxation of Tax-Exempt U.S. Shareholders,” and “—Taxation of Non-U.S.
Any entity (or other arrangement) treated as a partnership for federal income tax purposes that is a holder of our shares and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our shares. 11 Table of Contents Taxation as a REIT We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 1995 taxable year.
Any entity (or other arrangement) treated as a partnership for federal income tax purposes that is a holder of our shares and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our shares.
As of December 31, 2022, we owned 238 hotels with 40,053 rooms or suites located in 36 states, the District of Columbia, Ontario, Canada and San Juan, Puerto Rico and 765 service-oriented retail properties with 13,374,325 square feet located in 42 states.
As of December 31, 2023, we owned 221 hotels with 37,777 rooms or suites located in 36 states, the District of Columbia, Ontario, Canada and San Juan, Puerto Rico and 752 service-focused retail net lease properties with 13,341,172 square feet located in 42 states.
We also are responsible for funding hotel operations if at any time the funds available from working capital are insufficient to meet the financial requirements of the hotels.
We are required to maintain working capital for each hotel and to fund the cost of certain operating supplies (for example, linen, china, glassware, silverware and uniforms). We are also responsible for funding hotel operations if at any time the funds available from working capital are insufficient to meet the financial requirements of the hotels.
No U.S. shareholder may include on its federal income tax return any of our net operating losses or any of our capital losses. In addition, no portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders.
No U.S. shareholder may include on its federal income tax return any of our net operating losses or any of our capital losses.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following is a summary of the principal risk factors described in this section: • unfavorable market, economic and commercial real estate conditions due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges, volatility in the public equity and debt markets, pandemics (such as the COVID-19 pandemic) or other adverse public health safety events or conditions, geopolitical instability (such as the war in Ukraine), and other conditions beyond our control, may have a material adverse effect on our and our hotel managers’ and other operators’ and tenants’ results of operations and financial conditions, and our and their businesses may not return to the levels experienced prior to the COVID-19 pandemic, and they may be unable to satisfy their obligations to us; • we are subject to risks related to our debt, including our ability to refinance maturing debt and the cost of any such refinanced debt and our ability to reduce our debt leverage, which may remain at or above current levels for an indefinite period, covenants and conditions contained in our debt agreements which may restrict our operations and ability to make investments and to pay distributions to our shareholders, potential downgrades to our credit ratings and other limitations on our ability to access capital at reasonable costs or at all; • we have a high concentration of properties that are operated by Sonesta and TA, and their failure to profitably operate our properties could adversely impact our results of operations, and we could experience significant disruption to our operations if we were required to replace either Sonesta or TA; • our earnings will be more volatile than in previous years due to most of the owner’s priority returns under our hotel agreements no longer being guaranteed by our operators’ parent companies; • we and our managers and tenants face significant competition; • we may be unable to renew our leases or lease our properties to new tenants when they expire without decreasing rents or incurring significant costs or at all; • our potential sales or acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of competition, current market and economic conditions, including capital market disruptions, rising or sustained high interest rates and high inflation, or otherwise; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and climate change and climate related events; • insurance may not adequately cover our losses, and insurance costs may continue to increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s or our hotel managers’ information technology; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR, Sonesta and TA and others affiliated with them, may create conflicts of interest; • ESG initiatives, requirements and market expectations may impose additional costs and expose us to new risks; • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes; and • we may change our operational, financing and investment policies without shareholder approval, and we may reduce the rate of or eliminate our distributions to shareholders or the form of payment could change.
Biggest changeThe following is a summary of the principal risk factors described in this section: • unfavorable market and commercial real estate industry conditions due to, among other things, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets and in the commercial real estate markets, generally, pandemics, geopolitical instability and tensions, economic downturns or a possible recession and other conditions beyond our control, may have a material adverse effect on our and our hotel managers’ and other operators’ and tenants’ results of operations and financial conditions and they may be unable to satisfy their obligations to us; • we have a substantial amount of debt and we are subject to risks related to our debt, including our ability to refinance maturing debt and the cost of any such refinanced debt and our ability to maintain or reduce our debt leverage levels, covenants and conditions contained in our debt agreements which may restrict our operations by increasing our interest expense and limiting our ability to make investments in our properties, sell properties securing our debt and pay distributions to our shareholders, potential downgrades to our credit ratings and other limitations on our ability to access capital at reasonable costs or at all; • we have a high concentration of properties that are operated by Sonesta and TA, and their failure to profitably operate our properties or perform their obligations under their agreements with us, could adversely impact our results of operations, and we could experience significant disruption to our operations if we were required to replace either Sonesta or TA; • we and our managers and tenants face significant competition; • we may be unable to renew our leases or lease our properties to new tenants when they expire without decreasing rents or incurring significant costs or at all; • our potential future sales or acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of competition, ongoing market and economic conditions, including capital market disruptions, high interest rates, prolonged high inflation, or otherwise; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and adverse impacts from global climate change; • insurance may not adequately cover our losses, and insurance costs may continue to increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s or our hotel managers’ information technology; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR and Sonesta and others affiliated with them, may create conflicts of interest; • sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks; • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes; and • we may change our operational, financing and investment policies without shareholder approval, and we may reduce the rate of or eliminate our distributions to shareholders or the form of payment could change. 30 Table of Contents The risks described below may not be the only risks we face, but are risks we believe may be material at this time.
Our business plan includes the acquisition of additional properties. Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • competition from other investors; • contingencies in our acquisition agreements; • the availability, terms and cost of debt and equity capital; and • the extent of our debt leverage.
Our business plan includes the acquisition of additional properties. Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • the extent of our debt leverage; • the availability, terms and cost of debt and equity capital; • competition from other investors; and • contingencies in our acquisition agreements.
We may not succeed in selling properties we may identify for sale and any proceeds we may receive from sales we do complete may be less than expected, and we may incur losses with respect to any such sales.
We may not succeed in selling properties we identify for sale and any proceeds we may receive from sales we do complete may be less than expected, and we may incur losses with respect to any such sales.
Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under our credit agreement and our $610.2 million in aggregate principal amount of net lease mortgage notes (to the extent such debt remains outstanding and is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the Notes that are not secured by those assets.
Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under our credit agreement, the 2031 Notes and our $610.2 million in aggregate principal amount of net lease mortgage notes (to the extent such debt remains outstanding and is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the Notes that are not secured by those assets.
In addition, if the 2025 Notes and the 2027 Notes have a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, and at such time no default or event of default under the indenture and related supplements governing the 2025 Notes and the 2027 Notes has occurred and is continuing, the Guarantees and all other obligations of the subsidiary guarantors under the indenture will automatically terminate and be released.
In addition, if the 2025 Notes, the 2027 Notes and the 2031 Notes have a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, and BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, and at such time no default or event of default under the indenture and related supplements governing the 2025 Notes, the 2027 Notes and the 2031 Notes has occurred and is continuing, the Guarantees and all other obligations of the subsidiary guarantors under the indenture will automatically terminate and be released.
RMR and our hotel managers rely on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and their respective internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of their business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, guests, tenants and guarantors and lease data.
RMR and our hotel managers rely on information technology and systems, including the Internet and cloud-based infrastructures and services, commercially available software and their respective internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of their business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, guests, tenants and guarantors and lease data.
In such case, our lenders or noteholders may demand immediate payment of any outstanding debt and could seek payment from the subsidiary guarantors under our credit agreement, seek to sell any pledged equity interests of certain subsidiaries or the mortgaged properties owned by certain pledging subsidiaries, or we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.
In such case, our lenders or noteholders may demand immediate payment of any outstanding debt and could seek payment from the subsidiary guarantors under our credit agreement, seek to sell any pledged equity interests of certain subsidiaries or the mortgaged properties owned by certain pledged subsidiaries, or we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.
Planned capital expenditures could cost more and take longer to complete than expected as a result of labor costs and shortages and commodity and other price inflation due to supply chain challenges, among other things. We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.
Planned capital investments could cost more and take longer to complete than expected as a result of labor costs and shortages and commodity and other price inflation due to supply chain challenges, among other things. We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.
As a result, the Notes and the Guarantees are, and, except to the extent that future Notes are guaranteed by our non-guarantor subsidiaries, will be, structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes and the 2027 Notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
As a result, the Notes and the Guarantees are, and, except to the extent that future Notes are guaranteed by our non-guarantor subsidiaries, will be, structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes, the 2027 Notes and the 2031 Notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
Our hotels are subject to operating risks common to the hotel industry, many of which are beyond our control and may impact Sonesta and our other managers, including risks associated with: • competition from other hotels in our markets, or an oversupply of hotels in our markets; • increased operating costs, including wages, benefits, insurance and utilities, due to inflation, increased minimum wages and other factors, which may not be offset in the future by increased room rates; • increased property taxes due to many state and local governments facing budget deficits, or seeking to expand services, that have led many of them, and may in the future lead others to, increase assessments and/or taxes; • changes in marketing and distribution for the industry including the ability of third party internet and other travel intermediaries to attract and retain customers; • competition from other hotel operators or others to attract and retain qualified employees; • competition from alternative lodging options such as home sharing services, timeshares, vacation rentals or cruise ships in our markets; • low unemployment in the U.S. and a lack of suitable employees for certain job classifications, especially those for less skilled positions, which may drive up costs or affect service levels; • labor strikes, disruptions or lockouts that may impact operating performance; • dependence on demand from business and leisure travelers, which may fluctuate and be seasonal and could experience prolonged declines as a result of economic downturns or recessions or otherwise and possible long-term changes in business and consumer practices; • increases in energy costs, airline fares and other expenses related to travel, which may negatively affect traveling; • decreases in demand for business and leisure travel due to terrorism, terrorism alerts and warnings, military actions, natural disasters, concerns about climate change, pandemics or other public health safety concerns; • decreases in demand for business travel due to use of technologies that enhance interpersonal communication and interaction without the need to travel or meet in person; and • changes in customer preferences for various types of hotels or hotel locations.
Our hotels are subject to operating risks common to the hotel industry, many of which are beyond our control and may impact Sonesta and our other managers, including risks associated with: • competition from other hotels in our markets, or an oversupply of hotels in our markets; • increased operating costs, including wages, benefits, insurance and utilities, due to prolonged high inflation, increased minimum wages and other factors, which may not be offset in the future by increased room rates; 33 Table of Contents • increased property taxes due to many state and local governments facing budget deficits, or seeking to expand services, that have led many of them, and may in the future lead others to, increase assessments and/or taxes; • changes in marketing and distribution for the industry including the ability of third party internet and other travel intermediaries to attract and retain customers; • competition from other hotel operators or others to attract and retain qualified employees; • competition from alternative lodging options such as home sharing services, timeshares, vacation rentals or cruise ships in our markets; • low unemployment in the U.S. and a lack of suitable employees for certain job classifications, especially those for less skilled positions, which may drive up costs or affect service levels; • labor strikes, disruptions or lockouts that may impact operating performance; • dependence on demand from business and leisure travelers, which may fluctuate and be seasonal and could experience prolonged declines as a result of economic downturns or recessions or otherwise and possible long term changes in business and consumer practices; • increases in energy costs, airline fares and other expenses related to travel, which may negatively affect traveling; • decreases in demand for business and leisure travel due to terrorism, terrorism alerts and warnings, military actions, natural disasters, concerns about climate change, pandemics or other public health safety concerns; • decreases in demand for business travel due to use of technologies that enhance interpersonal communication and interaction without the need to travel or meet in person; and • changes in customer preferences for various types of hotels or hotel locations.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees,” as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; • requirements that shareholders comply with regulatory requirements (including Nevada and Louisiana gaming) affecting us which could effectively limit share ownership of us, including, in some cases, to 5% of our outstanding shares; • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees,” as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; • requirements that shareholders comply with regulatory requirements (including Nevada and Louisiana gaming) affecting us which could effectively limit share ownership of us, including, in some cases, to 5% of our outstanding shares; • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; 43 Table of Contents • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted. In addition, we may incur significant costs in preparing for possible future climate change or climate related events or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.
If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted. In addition, we may incur significant costs in preparing for possible future climate change or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.
In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on such Notes.
In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on such unsecured Notes.
Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders. The rules dealing with U.S. federal, state, and local taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury, and other taxation authorities.
Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders. The rules dealing with U.S. federal, state, local and foreign taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury and other taxation authorities.
In that event, because such Notes and the Guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.
In that event, because the Unsecured Notes and Guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such unsecured Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.
If the value of such remaining assets is less than the aggregate outstanding principal amount of such Notes and accrued interest and all future debt ranking equally with such Notes and the Guarantees, we will be unable to fully satisfy our obligations under such Notes.
If the value of such remaining assets is less than the aggregate outstanding principal amount of such unsecured Notes and accrued interest and all future debt ranking equally with such Unsecured Notes and Guarantees, we will be unable to fully satisfy our obligations under such unsecured Notes.
They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services. Some of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR or its subsidiaries provide management services.
They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services.
Risks Related to Our Relationships with RMR, Sonesta and TA We are dependent upon RMR to manage our business and implement our growth strategy. We have no employees. Personnel and services that we require are provided to us by RMR pursuant to our management agreements with RMR.
Risks Related to Our Relationships with RMR and Sonesta We are dependent upon RMR to manage our business and implement our growth strategy. We have no employees. Personnel and services that we require are provided to us by RMR pursuant to our management agreements with RMR.
Such adverse economic conditions may also reduce overall demand for rental space, which could adversely affect our ability to maintain our current tenants and attract new tenants. At any given time, our tenants may experience a downturn in their business that may weaken the operating results and financial condition of individual properties or of their business as whole.
Such adverse economic conditions may also reduce overall demand for leased space, which could adversely affect our ability to maintain our current tenants or attract new tenants. At any given time, our tenants may experience a downturn in their business that may weaken the operating results and financial condition of individual properties or of their business as whole.
Any foreclosure on a property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.
Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.
The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes and the 2027 Notes.
The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes, the 2027 Notes and the 2031 Notes.
For these reasons, among others, our distribution rate may decline or we may cease paying distributions to our shareholders. Further, in order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.
For these reasons, among others, our distribution rate may decline or we may cease paying distributions to our shareholders. Further, in order to preserve liquidity, we may elect to, in part, pay distributions to our shareholders in a form other than cash, such as issuing additional common shares to our shareholders, as permitted by the applicable tax rules.
If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to pay distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a 46 Table of Contents particular year.
If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to pay distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
We may also be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, rising or sustained high interest rates and other market conditions.
We may also be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, high interest rates and other market conditions.
Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
Our property management fees are calculated based on rents we receive and we also pay RMR construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
In addition, we may incur significant costs in attempting to comply with ESG policies or third party expectations or demands. Market and government actions in response to concerns about global climate change and supply chain challenges may negatively impact our business.
In addition, we may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third party expectations or demands. Market and government actions in response to concerns about global climate change and supply chain challenges may negatively impact our business.
Because economic conditions in the United States may affect business and leisure travel, hotel occupancy, trucking volume and demand for diesel fuel, gasoline, real estate values, occupancy levels and returns and rents, current and future economic conditions in the United States, including slower growth or a recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
As economic conditions in the United States may affect business and leisure travel, hotel occupancy, trucking volume and demand for diesel fuel, gasoline, real estate values, occupancy levels and returns and rents, current and future economic conditions in the United States, including slower growth or a possible recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
This and other possible changing work practices have adversely impacted, and may in the future adversely impact, RMR’s, our hotel managers’ or other third parties’ abilities to maintain the security, proper function and availability of their respective information technology and systems since remote 39 Table of Contents working by their employees could strain their respective technology resources and introduce operational risk, including heightened cybersecurity risk.
This and other possible changing work practices have adversely impacted, and may in the future adversely impact, RMR’s, our hotel managers’ or other third parties’ abilities to maintain the security, proper function and availability of their respective information technology and systems since remote working by their employees could strain their respective technology resources and introduce operational risk, including heightened cybersecurity risk.
In addition, we are obligated under our 41 Table of Contents management agreements to reimburse RMR for employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed.
In addition, we are obligated under our management agreements to reimburse RMR for employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed.
Our bylaws also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any shareholder or such shareholder’s attorneys.
Our bylaws also generally provide that each party to such an 44 Table of Contents arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any shareholder or such shareholder’s attorneys.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, or losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or an operator may not be able to pay.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes or losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or an operator may not be able to pay.
We lease most of our hotel properties to our TRSs pursuant to arrangements that, under the IRC, are intended to qualify the rents we receive from our TRSs as income that satisfies the REIT gross income tests.
We lease all of our hotel properties to our TRSs pursuant to arrangements that, under the IRC, are intended to qualify the rents we receive from our TRSs as income that satisfies the REIT gross income tests.
RMR may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses. 40 Table of Contents Our management structure and agreements and relationships with RMR and RMR’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.
RMR may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses. Our management structure and agreements and relationships with RMR and RMR’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.
Risks Related to Our Business Unfavorable market and economic conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
Risks Related to Our Business Unfavorable market and industry conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
We may be unable to fund capital improvements at our properties and our investments may cost more and take longer to complete than expected. Some of our management agreements and lease arrangements require us to fund capital improvements at certain of our properties. Hotels in particular require us to expend significant amounts to maintain them.
We may be unable to fund capital improvements at our properties and our investments may cost more and take longer to complete than expected. Some of our management agreements and lease arrangements require us to fund capital improvements at certain of our properties. Hotels in particular require us to expend significant amounts to maintain them and to meet brand standards.
If any of our tenants or hotel managers files for bankruptcy, we may experience delays in enforcing our rights, we may be limited in our ability to replace the 38 Table of Contents tenant or hotel manager and we may incur substantial costs in protecting our investment and re-leasing or finding a replacement tenant or hotel manager.
If any of our tenants or hotel managers files for bankruptcy, we may experience delays in enforcing our rights, we may be limited in our ability to replace the tenant or hotel manager and we may incur substantial costs in protecting our investment and re-leasing or finding a replacement tenant or hotel manager.
Such events could also adversely impact us or the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events. Insurance may not adequately cover all losses sustained by us or the tenants of our properties.
Such events could also adversely impact us or the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events. Insurance 38 Table of Contents may not adequately cover all losses sustained by us or the tenants of our properties.
The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the 45 Table of Contents Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts.
The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in 30 Table of Contents this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee of the 2025 Notes and the 2027 Notes (or any future Notes that are guaranteed by our subsidiaries) could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee: • received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; • was insolvent or rendered insolvent by reason of such incurrence; • was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or • intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the Guarantees and the related liens, if applicable (or any future Notes that are guaranteed by our subsidiaries), could be voided, or claims in respect of a guarantee and the related lien, if applicable, could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee and related lien, if applicable: • received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee or granting of such lien, if applicable; • was insolvent or rendered insolvent by reason of such incurrence; • was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or • intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
Further, if we were required to replace 32 Table of Contents Sonesta or TA, we could experience significant disruptions in operations at the applicable properties, which could reduce our income and cash flows from, and the value of, those properties.
Further, if we were required to replace Sonesta or TA, we could experience significant disruptions in operations at the applicable properties, which could reduce our income and cash flows from, and the value of, those properties.
In addition, these laws also impose various requirements regarding the operation and maintenance of properties 37 Table of Contents and recordkeeping and reporting requirements relating to environmental matters that require us or the operators of our properties to incur costs to comply with.
In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the operators of our properties to incur costs to comply with.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant, and the current economic conditions, such as rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges and economic downturns or a possible recession, may increase the risk of our tenants or hotel managers filing for bankruptcy.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant, and the current economic conditions, such as high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions and economic downturns or a possible recession, may increase the risk of our tenants or hotel managers filing for bankruptcy.
Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes. A downgrade in our credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.
Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes. 49 Table of Contents A downgrade in our credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.
A franchisor’s or licensor’s termination or refusal to renew a franchise or license agreement with our tenant would likely have a material adverse effect on the ability of the tenant to pay rent to us.
A franchisor’s or licensor’s termination or refusal to renew a franchise or license agreement with our tenant would likely have a material adverse effect on 36 Table of Contents the ability of the tenant to pay rent to us.
However, these provisions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in 43 Table of Contents control of us or unsolicited acquisition proposals that a shareholder may consider favorable.
However, these provisions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable.
Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indenture and related supplements governing the 2025 Notes and the 2027 Notes, of the capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as such terms 49 Table of Contents are defined in the applicable supplemental indenture.
Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indentures and related supplements governing the 2025 Notes, the 2027 Notes and the 2031 Notes, of the capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as such terms are defined in the applicable indenture or supplemental indenture.
In addition, consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, unemployment levels, perceptions of the safety of travel, the continued use of video conferencing technologies rather than in person meetings and broader macroeconomic trends and conditions.
Consumer confidence, customer demand, corporate travel and lodging demand have been and will continue to be affected by economic and market conditions, unemployment levels, perceptions of the safety of travel, the continued use of video conferencing technologies rather than in person meetings and broader macroeconomic trends and conditions.
For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.
For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase 32 Table of Contents price equal to the outstanding balance of the debt secured by the mortgage.
These recommendations by proxy advisory firms have affected the outcomes of past Board of Trustees elections and votes on our say on pay, and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections and votes on our say on pay, which may increase shareholder activism and litigation.
These recommendations by proxy advisory firms have affected the outcomes of past Board of Trustees elections and votes on our say on pay and other shareholder votes, 42 Table of Contents and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections and other shareholder votes, which may increase shareholder activism and litigation.
We own approximately 34.0% of Sonesta’s outstanding common stock. Risks that we have identified elsewhere in this Risk Factors section, particularly those relating to the hotel industry, are applicable to our ownership of Sonesta common stock. 42 Table of Contents In addition, Sonesta is a private company that is controlled by Adam Portnoy, one of our Managing Trustees.
We own 34% of Sonesta’s outstanding common stock. Risks that we have identified elsewhere in this Risk Factors section, particularly those relating to the hotel industry, are applicable to our ownership of Sonesta common stock. In addition, Sonesta is a private company that is controlled by Adam Portnoy, one of our Managing Trustees.
Sales of our common shares may cause a decline in the value of our common shares; • amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates.
Sales of our common shares may cause a decline in the market price of our common shares; • amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates.
Accordingly, the 2025 Notes and the 2027 Notes may not at all times be guaranteed by some or all of the subsidiaries which guaranteed the 2025 Notes or the 2027 Notes on the date they were initially issued. Item 1B. Unresolved Staff Comments None. 50 Table of Contents
Accordingly, the 2025 Notes, the 2027 Notes and the 2031 Notes may not at all times be guaranteed by some or all of the subsidiaries which guaranteed the 2025 Notes, the 2027 Notes and the 2031 Notes on the date they were initially issued. Item 1B. Unresolved Staff Comments None.
Secured debt, including mortgage and asset backed debt, increases our risk of asset and property losses because defaults on debt secured by our assets may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing our obligations under our credit agreement or our other secured loans if we default on such obligations.
Secured debt, including mortgage and asset backed debt, increases our risk of asset and property losses because defaults on debt secured by our assets may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing any loans if we are in default under such loans.
For example, current market conditions have and may continue to cause increased capitalization rates which, together with rising interest rates, has resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with high interest rates, have resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
For these reasons, among others, TA may be unable to pay amounts due to us under the terms of our leases with TA. For more information about our leases with TA, see Notes 5, 9 and 15 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.
For these reasons, among others, Sonesta may be unable to pay amounts due to us under the terms of our management agreements with Sonesta. For more information about our management agreements with Sonesta, see Notes 4, 5 and 9 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.
We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, operating companies in the hospitality industry, individuals, foreign investors and other public and private companies.
We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, operating companies in the hospitality industry, individuals, foreign investors and other 35 Table of Contents public and private companies.
We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters. We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and climate change and climate related events.
We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters. We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and adverse impacts from global climate change.
As a result, a tenant may delay lease commencement, 36 Table of Contents decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy.
As a result, a tenant may delay lease commencement, decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy.
Donley is also the chief financial officer and treasurer of Industrial Logistics Properties Trust, or ILPT, another REIT managed by RMR. Messrs. Portnoy, Murray, Hargreaves and Donley have duties to RMR, Mr. Murray has duties to Sonesta and Mr. Donley has duties to ILPT, as well as to us, and we do not have their undivided attention.
Donley is also the chief financial officer and treasurer of Office Properties Income Trust, or OPI, another REIT managed by RMR. Messrs. Portnoy, Murray, Hargreaves and Donley have duties to RMR, Mr. Murray has duties to Sonesta and Mr. Donley has duties to OPI, as well as to us, and we do not have their undivided attention.
If market interest rates continue to rise or remain at elevated levels, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments that offer higher distribution rates.
If interest rates remain at elevated levels, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments with higher distribution rates.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we may identify for sale, changes in the financial condition of prospective purchasers for and the tenants of the properties, the terms of leases with tenants at certain of the properties, the characteristics, quality and prospects of the properties, the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, such as rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges and economic downturns or recessions, and changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
In particular, these factors could arise from, among other things: • weaknesses in or a lack of established markets for the properties we may identify for sale; • the availability of financing to potential purchasers on reasonable terms; • changes in the financial condition of prospective purchasers for, and the tenants of, the properties; 37 Table of Contents • the terms of leases with tenants at certain of the properties; • the characteristics, quality and prospects of the properties; • the number of prospective purchasers; • the number of competing properties in the market; • unfavorable local, national or international economic conditions, such as high interest rates, labor market challenges, prolonged high inflation, supply chain challenges and economic downturns or a possible recession; and • changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
RMR or its subsidiary also acts as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing director, managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees or board of directors, as applicable, of those Nasdaq listed companies.
RMR or its subsidiaries also act as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees of those Nasdaq listed companies.
Unfavorable market and industry conditions, including rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges and economic downturns or recessions, may increase these risks. We may experience significant costs in connection with renewing, leasing or re-leasing our properties, which could materially and adversely affect us.
Unfavorable market and industry conditions, including high interest rates, prolonged high inflation, labor market challenges, supply chain challenges and economic downturns or a possible recession, may increase these risks. We may experience significant costs in connection with renewing, leasing or re-leasing our properties, which could materially and adversely affect us.
Our business may be adversely affected by market, economic and commercial real estate conditions in the U.S. and global economies and/or the local economies in the markets in which our properties are located.
Our business and operations may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the commercial real estate industry and/or the local economies in the markets in which our properties are located.
Portnoy holds equity investments in other companies to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example: as of December 31, 2022, Mr. Portnoy beneficially owned, in aggregate, 1.1% of our outstanding common shares, 4.1% of TA’s outstanding common shares (including through RMR) and Mr.
Portnoy holds equity investments in other companies to 40 Table of Contents which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example: as of December 31, 2023, Mr. Portnoy beneficially owned, in aggregate, 1.1% of our outstanding common shares and Mr.
The historical and continuing relationships which we, RMR and Mr. Portnoy have with Sonesta and TA could create, or appear to create, conflicts of interest with respect to matters involving us, the other companies to which RMR or its subsidiaries provide management services and their related parties.
Portnoy have with Sonesta could create, or appear to create, conflicts of interest with respect to matters involving us, the other companies to which RMR or its subsidiaries provide management services and their related parties.
As of December 31, 2022, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $42.6 million (including guarantees of other indebtedness and trade payables, but excluding liabilities to us or a subsidiary guarantor), which are structurally senior to the 2025 Notes and the 2027 Notes.
As of December 31, 2023, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $750.4 million (including guarantees of other indebtedness and trade payables, but excluding liabilities to us or a subsidiary guarantor), which are structurally senior to the 2025 Notes, the 2027 Notes and the 2031 Notes.
However: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any continuing negative market practices regarding business transient travel that increased during or any new public health safety condition that may arise and market reaction to that condition, or any negative impact caused by current market and economic 47 Table of Contents conditions, such as high inflation, rising or sustained high interest rates, labor market challenges, supply chain challenges and economic downturns or recessions, on our business, results of operations and liquidity; • our payment of distributions is subject to restrictions contained in our debt agreements and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under our debt agreements, we may be limited or, in some cases, prohibited from paying distributions to our shareholders; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO and Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, 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 our dividend yield compared to the dividend yields 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.
We intend to continue to pay regular quarterly distributions to our shareholders; however: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused 47 Table of Contents by current market and economic conditions, such as high interest rates, prolonged high inflation and economic downturns or a possible recession, on our business, results of operations and liquidity; • our payment of distributions is subject to restrictions contained in our debt agreements and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under our debt agreements, we may be limited or, in some cases, prohibited from paying distributions to our shareholders; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our funds from operations, or FFO, and our normalized funds from operations, or Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, 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 our dividend yield compared to the dividend yields 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.
If we and RMR fail to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR’s announced goals and other initiatives are not executed as planned, our and RMR’s reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
If we and RMR fail to comply with ESG related regulations and to satisfy the expectations of investors 39 Table of Contents and our tenants and other stakeholders or our or RMR’s announced goals and other initiatives are not executed as planned, our and RMR’s reputation could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
These alternatives could increase our costs or reduce our shareholders’ equity. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market price of our common shares to decline. Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow.
Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market price of our common shares to decline. 46 Table of Contents Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow.
We are subject to numerous risks associated with our debt, including our ability to refinance maturing debt and the cost of any refinancing, the risk that our cash flows could be insufficient for us to make required payments and risks associated with increases in and sustained high market interest rates.
We are subject to numerous risks associated with our debt, including our ability to refinance maturing debt and the cost of any refinancing, the risk that our cash flows could be insufficient for us to make required payments and risks associated with interest rates remaining high for an extended period of time.
In July 2022, RMR announced its zero emissions goal pursuant to which it has pledged to reduce its scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
Pursuant to RMR’s zero emissions goal, RMR has pledged to reduce its Scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
Our subsidiaries that guarantee our 7.50% senior notes due 2025, or the 2025 Notes, and our 5.50% senior notes due 2027, or the 2027 Notes, are the sole obligor on the guarantees of such notes, or the Guarantees. The subsidiaries that guarantee the 2025 Notes and the 2027 Notes do not currently guarantee any of our other Notes.
Our subsidiaries that guarantee the Notes are the sole obligor on the guarantees of such notes, or the Guarantees. The subsidiaries that guarantee the 2025 Notes, the 2027 Notes and the 2031 Notes do not currently guarantee any of our other Notes.
In addition, we may elect to change or abandon our strategy and forego or abandon property or other asset sales.
In addition, we may elect to change or abandon our strategy and forego or abandon property or other asset sales. Bankruptcy law may adversely impact us.
If our hotel managers fail to operate our hotels profitably, we may need to fund operating losses for those hotels or make capital contributions to Sonesta. The owner’s priority returns we receive from our managed hotels are dependent upon the financial results of those hotels’ operations.
Our tenants’ failure to successfully operate their businesses could materially and adversely affect us. If our hotel managers fail to operate our hotels profitably, we may need to fund operating losses for those hotels or make capital contributions to Sonesta. The owner’s priority returns we receive from our managed hotels are dependent upon the financial results of those hotels’ operations.
Rising interest rates may cause our interest expense to increase materially. Expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, development or redevelopment projects, lease obligations or other purposes and hinder our ability to pay distributions to our shareholders.
Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, lease obligations, capital expenditures, refinancing, acquisitions, development or redevelopment projects or other purposes and hinder our ability to pay distributions to our shareholders.
We may not succeed in selling properties or other assets and any sales may be delayed or may not occur or, if sales do occur, the terms may not meet our expectations, and we may incur losses in connection with any sales.
We may not succeed in selling properties and any sales may be delayed or may not occur or, if sales do occur, the terms may not meet our expectations and we may incur losses in connection with any sales. In addition, we may elect to forego or abandon property sales.
Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties.
Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. Our shareholders or the shareholders of RMR Inc. or other related parties may challenge any such related party transactions.
As a result of the COVID-19 pandemic, the market practices that arose or increased in response to the pandemic and the impacts they have had on travel and the broader economy throughout the United States since March 2020, our hotels experienced significant declines in occupancy, which have had a significant negative effect on our operating results and cash flow.
As a result of market practices that arose or increased in recent years and the impacts they have had on travel and the broader economy throughout the United States, our hotels experienced significant declines in operating performance which have had a significant negative effect on our operating results and cash flow.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeHotels Net Lease All Properties Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Total Number of Properties Total Undepreciated Carrying Value Total Depreciated Carrying Value Location of Properties Held and used United States: Alabama 3 $ 28,245 $ 16,595 32 $ 109,009 $ 83,530 35 $ 137,254 $ 100,125 Alaska — — — 1 3,716 2,667 1 3,716 2,667 Arizona 14 205,470 118,650 25 184,226 140,048 39 389,695 258,698 Arkansas — — — 16 86,241 56,683 16 86,241 56,683 California 36 1,019,146 660,026 22 220,971 178,572 58 1,240,117 838,599 Colorado 5 141,493 101,973 8 89,008 73,303 13 230,501 175,276 Connecticut — — — 3 18,404 10,510 3 18,404 10,510 Delaware 1 15,396 11,709 — — — 1 15,396 11,709 Florida 11 241,236 151,605 46 193,800 154,261 57 435,037 305,866 Georgia 16 379,609 244,064 74 217,377 172,177 90 596,985 416,240 Hawaii 1 111,235 60,916 — — — 1 111,235 60,916 Idaho — — — 2 17,801 13,588 2 17,801 13,588 Illinois 10 401,965 292,737 54 230,205 185,722 64 632,170 478,460 Indiana 2 26,149 12,195 42 190,122 149,592 44 216,272 161,786 Iowa 1 6,762 3,055 10 29,184 24,064 11 35,946 27,118 Kansas 1 12,894 7,137 5 38,100 30,460 6 50,994 37,597 Kentucky — — — 13 54,545 39,991 13 54,545 39,991 Louisiana 3 239,079 172,905 12 96,345 67,674 15 335,424 240,579 Maryland 5 113,772 66,366 8 58,595 36,769 13 172,366 103,135 Massachusetts 8 235,649 158,741 — — — 8 235,649 158,741 Michigan 8 68,326 37,144 52 97,887 73,851 60 166,213 110,995 Minnesota 4 111,895 83,082 12 70,863 60,443 16 182,758 143,524 Mississippi — — — 5 23,165 16,418 5 23,165 16,418 Missouri 4 152,278 112,096 25 99,110 75,367 29 251,388 187,463 Nebraska — — — 5 25,549 14,820 5 25,549 14,820 Nevada 3 54,242 29,997 6 144,209 104,168 9 198,451 134,165 New Hampshire — — — 1 5,955 3,350 1 5,955 3,350 New Jersey 8 139,675 80,364 3 76,460 53,487 11 216,135 133,851 New Mexico 2 26,376 11,841 16 96,674 65,684 18 123,050 77,525 New York 1 59,031 36,063 9 46,421 30,537 10 105,452 66,600 North Carolina 8 140,518 87,587 17 61,660 46,866 25 202,179 134,453 North Dakota — — — 1 3,476 2,960 1 3,476 2,960 Ohio 5 114,917 84,244 39 245,692 182,052 44 360,609 266,296 Oklahoma 1 7,262 3,891 12 66,515 55,863 13 73,777 59,754 Oregon 1 117,417 91,610 7 72,671 62,434 8 190,088 154,044 Pennsylvania 5 112,046 65,830 28 151,776 110,074 33 263,823 175,904 Rhode Island 1 16,316 6,891 — — — 1 16,316 6,891 South Carolina 1 48,917 30,078 17 93,270 69,413 18 142,187 99,490 Tennessee 7 147,257 69,864 37 110,354 85,117 44 257,612 154,981 Texas 20 319,893 165,999 56 375,619 275,194 76 695,511 441,193 Utah 2 68,493 33,021 3 13,063 8,501 5 81,556 41,522 Virginia 8 116,058 59,612 18 73,898 56,844 26 189,955 116,456 Washington 7 192,904 131,368 4 21,784 17,316 11 214,687 148,684 West Virginia 1 10,199 5,069 5 14,410 10,714 6 24,608 15,783 Wisconsin 2 45,922 34,727 4 10,908 7,536 6 56,829 42,263 Wyoming — — — 6 58,896 37,504 6 58,896 37,504 216 5,248,042 3,339,052 761 3,897,934 2,946,124 977 9,145,973 6,285,173 Washington, D.C. 1 144,852 132,678 — — — 1 144,852 132,678 Ontario, Canada 2 53,778 30,374 — — — 2 53,778 30,374 Puerto Rico 1 216,266 142,511 — — — 1 216,266 142,511 4 414,896 305,563 — — — 4 414,896 305,563 Total 220 $ 5,662,938 $ 3,644,615 761 $ 3,897,934 $ 2,946,124 981 $ 9,560,869 $ 6,590,736 51 Table of Contents Hotels Net Lease All Properties Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Total Number of Properties Total Undepreciated Carrying Value Total Depreciated Carrying Value Location of Properties Held For Sale: Georgia 1 $ 5,666 $ 4,976 — $ — $ — 1 $ 5,666 $ 4,976 Illinois — — — 2 729 729 2 729 729 Maryland 1 4,220 4,220 — — — 1 4,220 4,220 Massachusetts 1 7,746 6,678 — — — 1 7,746 6,678 New Jersey 1 11,451 11,451 — — — 1 11,451 11,451 New York 3 22,064 18,511 — — — 3 22,064 18,511 North Carolina 2 12,381 10,418 — — — 2 12,381 10,418 Ohio — — — 2 648 648 2 648 648 Oklahoma 1 7,348 6,471 — — — 1 7,348 6,471 Pennsylvania 3 23,370 20,113 — — — 3 23,370 20,113 South Carolina 1 5,295 4,749 — — — 1 5,295 4,749 Texas 1 5,692 5,064 — — — 1 5,692 5,064 Virginia 3 19,735 17,569 — — — 3 19,735 17,569 Total 18 124,968 110,220 4 1,377 1,377 22 126,345 111,597 238 $ 5,787,902 $ 3,754,835 765 $ 3,899,311 $ 2,947,497 1,003 $ 9,687,214 $ 6,702,332 At December 31, 2022, 13 of our hotels were on land we leased partially or entirely from unrelated third parties.
Biggest changeThe following tables summarize certain information about our properties as of December 31, 2023 (dollars in thousands): Hotels Net Lease All Properties Location of Properties Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Total Number of Properties Total Undepreciated Carrying Value Total Depreciated Carrying Value Held and Used: United States: Alabama 3 $ 30,634 $ 18,396 32 $ 108,369 $ 79,837 35 $ 139,003 $ 98,233 Alaska — — — 1 3,716 2,347 1 3,716 2,347 Arizona 14 209,503 117,328 25 182,689 135,687 39 392,192 253,015 Arkansas — — — 16 85,917 53,711 16 85,917 53,711 California 36 1,047,343 660,117 22 217,686 173,074 58 1,265,029 833,191 Colorado 5 137,753 98,736 8 87,748 70,890 13 225,501 169,626 Connecticut — — — 3 17,339 9,847 3 17,339 9,847 Delaware 1 16,614 12,135 — — — 1 16,614 12,135 Florida 12 423,028 325,131 46 190,886 148,858 58 613,914 473,989 Georgia 16 387,841 241,117 73 212,367 164,150 89 600,208 405,267 Hawaii 1 132,945 77,224 — — — 1 132,945 77,224 Idaho — — — 2 16,969 13,163 2 16,969 13,163 Illinois 10 404,971 282,591 53 228,530 177,202 63 633,501 459,793 Indiana 2 29,738 15,068 39 187,001 140,763 41 216,739 155,831 Iowa 1 6,656 2,865 9 27,954 22,560 10 34,610 25,425 Kansas 1 14,575 8,546 5 38,088 29,068 6 52,663 37,614 Kentucky — — — 12 52,894 37,478 12 52,894 37,478 Louisiana 3 241,828 167,895 12 95,224 64,498 15 337,052 232,393 Maryland 5 115,201 64,637 8 51,038 34,781 13 166,239 99,418 Massachusetts 8 248,808 165,844 — — — 8 248,808 165,844 Michigan 8 70,656 38,416 49 94,743 67,598 57 165,399 106,014 Minnesota 3 105,144 75,500 11 66,370 54,119 14 171,514 129,619 Mississippi — — — 5 23,155 15,786 5 23,155 15,786 Missouri 4 152,975 106,939 24 89,429 64,465 28 242,404 171,404 Nebraska — — — 5 24,144 13,965 5 24,144 13,965 Nevada 3 53,787 27,859 6 142,211 100,690 9 195,998 128,549 New Hampshire — — — 1 5,847 3,093 1 5,847 3,093 New Jersey 8 146,395 83,112 3 75,529 51,504 11 221,924 134,616 New Mexico 2 26,306 10,965 16 96,115 62,518 18 122,421 73,483 New York 1 68,635 43,726 9 44,426 28,481 10 113,061 72,207 North Carolina 8 145,285 86,825 15 52,643 39,094 23 197,928 125,919 North Dakota — — — 1 3,476 2,802 1 3,476 2,802 Ohio 5 117,015 82,592 37 238,118 172,175 42 355,133 254,767 Oklahoma 1 7,212 3,637 12 66,320 53,746 13 73,532 57,383 Oregon 1 109,682 88,780 7 72,491 60,502 8 182,173 149,282 Pennsylvania 5 116,687 66,997 28 147,052 105,260 33 263,739 172,257 Rhode Island 1 16,681 6,600 — — — 1 16,681 6,600 South Carolina 1 54,942 35,373 16 88,520 63,031 17 143,462 98,404 Tennessee 7 149,879 68,097 37 107,733 81,682 44 257,612 149,779 Texas 20 331,090 170,190 55 368,882 260,169 75 699,972 430,359 Utah 2 76,427 38,902 3 12,827 8,015 5 89,254 46,917 Virginia 8 121,017 61,126 18 73,354 54,200 26 194,371 115,326 Washington 7 194,398 126,966 4 20,480 16,600 11 214,878 143,566 West Virginia 1 10,600 5,242 5 14,284 10,001 6 24,884 15,243 Wisconsin 2 45,755 33,491 4 10,897 7,035 6 56,652 40,526 Wyoming — — — 6 56,885 35,198 6 56,885 35,198 216 5,568,006 3,518,965 743 3,800,346 2,789,643 959 9,368,352 6,308,608 Washington, DC 1 146,147 130,722 — — — 1 146,147 130,722 Ontario, Canada 2 55,082 29,337 — — — 2 55,082 29,337 Puerto Rico 1 216,756 135,873 — — — 1 216,756 135,873 4 417,985 295,932 — — — 4 417,985 295,932 Total 220 $ 5,985,991 $ 3,814,897 743 $ 3,800,346 $ 2,789,643 963 $ 9,786,337 $ 6,604,540 51 Table of Contents Hotels Net Lease All Properties Location of Properties Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Number of Properties Undepreciated Carrying Value Depreciated Carrying Value Total Number of Properties Total Undepreciated Carrying Value Total Depreciated Carrying Value Held For Sale: Illinois — $ — $ — 3 $ 777 $ 777 3 $ 777 $ 777 Indiana — — — 1 73 73 1 73 73 Michigan — — — 2 239 239 2 239 239 Minnesota 1 6,919 4,060 — — — 1 6,919 4,060 Missouri — — — 1 5,044 5,044 1 5,044 5,044 Ohio — — — 2 253 253 2 253 253 Total 1 $ 6,919 $ 4,060 9 $ 6,386 $ 6,386 10 $ 13,305 $ 10,446 221 $ 5,992,910 $ 3,818,957 752 $ 3,806,732 $ 2,796,029 973 $ 9,799,642 $ 6,614,986 As of December 31, 2023, 308 of our net lease properties with an aggregate undepreciated carrying value of $755.1 million were encumbered by mortgage notes with an aggregate principal balance of $608.6 million, and 70 of our net lease travel center properties with an aggregate undepreciated carrying value of $785.9 million secured our $1.0 billion senior secured notes.
The leased land is generally used for parking. We believe these two hotels would be operable without the leased land. (2) Three of these net lease properties with a depreciated carrying value totaling $25,105 are partially on land we lease from unrelated third parties.
The leased land is generally used for parking. We believe these two hotels would be operable without the leased land. (2) Three of these net lease properties with a depreciated carrying value totaling $23,651 are partially on land we lease from unrelated third parties.
However, if a hotel manager did not perform obligations under a ground lease or elected not to renew any ground lease, we might have to perform obligations under the ground lease or renew the ground lease in order to protect our investment in the affected property.
However, if a hotel manager or a tenant does not perform obligations under a ground lease or elects not to renew any ground lease, we might have to perform obligations under the ground lease or renew the ground lease in order to protect our investment in the affected property.
The aggregate depreciated carrying value of our properties subject to ground leases was as follows at December 31, 2022 (in thousands): 13 hotels (1) $ 317,303 15 net lease (2) 65,059 Total $ 382,362 (1) Two of these hotels with a depreciated carrying value totaling $54,715 are partially on land we lease from unrelated third parties.
At December 31, 2023, the aggregate depreciated carrying value of our properties subject to ground leases was as follows (dollars in thousands): 8 hotels (1) $ 133,155 14 net lease (2) 50,275 Total $ 183,430 (1) Two of these hotels with a depreciated carrying value totaling $53,401 are partially on land we lease from unrelated third parties.
The average remaining term of the ground leases (including renewal options) is approximately 33 years (range of 12 to 65 years). Ground rent payable under eight of the ground leases is generally calculated as a percentage of hotel revenues.
The average remaining term of the ground leases (including renewal options) for our hotels and our net lease properties is approximately 39 years (range of 11 to 64 years) and 16 years (range of three months to 41 years), respectively. Ground rent payable under three of the hotel ground leases is generally calculated as a percentage of hotel revenues.
Twelve of the 13 ground leases require annual minimum rents averaging $256 per year; future rents under two ground leases have been prepaid. Pursuant to the terms of our management agreements and leases, payments of ground lease obligations are generally made by our hotel managers.
Pursuant to the terms of our management agreements and leases, payments of ground lease obligations are generally made by our hotel managers and tenants.
Any pledge, sale or transfer of our interests in a ground lease may require the consent of the applicable ground lessor and its lenders. At December 31, 2022, 15 of our net lease properties were on land we leased partially or entirely from unrelated third parties.
At December 31, 2023, eight of our hotels and 14 of our net lease properties were on land we leased partially or entirely from unrelated third parties.
Item 2. Properties At December 31, 2022, we owned 238 hotels and 765 retail net lease properties. The following tables summarize certain information about our properties as of December 31, 2022 (dollars in thousands).
Item 2. Properties At December 31, 2023, we owned 221 hotels and 752 service-focused retail net lease properties.
Removed
The average remaining term of the ground leases (including renewal options) is approximately 9 years (range of 1 to 19 years). Ground rent payable under the ground leases is generally a fixed amount, averaging $435 per year. Payments of these ground lease obligations are made by our tenants.
Added
In addition, 69 properties, including 66 hotels and three net lease properties, with an aggregate undepreciated carrying value of $1,594.3 million secured our revolving credit facility.
Removed
However, if our tenants did not perform obligations under a ground lease or elected not to renew any ground lease, we might have to perform obligations under the ground lease or renew the ground lease in order to protect our investment in the affected property.
Added
For further information regarding our mortgage notes, senior secured notes, and revolving credit facility, see Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Added
Seven of the eight hotel ground leases require annual minimum rents averaging $337 thousand per year; future rent under one ground lease has been prepaid. Ground rent payable under the ground leases for our net lease properties is generally a fixed amount, averaging $420 thousand per year.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough we are unable to predict with certainty the eventual outcome of any litigation, we are currently not a party to any litigation which we expect to have a material adverse effect on our business. 52 Table of Contents Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeItem 3. Legal Proceedings From time to time, we may become involved in litigation matters incidental to the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, we are currently not a party to any litigation which we expect to have a material adverse effect on our business. Item 4.
Removed
Item 3. Legal Proceedings From time to time, we may become involved in litigation matters incidental to the ordinary course of our business.
Added
Mine Safety Disclosures Not applicable. 52 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2022: Maximum Total Number of Approximate Dollar Shares Purchased Value of Shares that Number of Average as Part of Publicly May Yet Be Purchased Shares Price Paid Announced Plans Under the Plans or Calendar Month Purchased (1) per Share of Programs Programs October 1, 2022 - October 31, 2022 257 $ 5.42 — $ — December 1, 2022 - December 31, 2022 761 7.29 — $ — 1,018 $ 6.82 — $ — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of one of our former officers and a former officer and employee of RMR in connection with the vesting of awards of our common shares.
Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2023: Calendar Month Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs December 1, 2023 - December 31, 2023 645 $ 7.76 — $ — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former employee of RMR in connection with the vesting of awards of our common shares.
We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase dates. Our current cash distribution rate to common shareholders is $0.20 per share per quarter, or $0.80 per share per year.
We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. Our current cash distribution rate to common shareholders is $0.20 per share per quarter, or $0.80 per share per year.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are traded on Nasdaq (symbol: SVC). As of February 24, 2023, there were 409 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are traded on Nasdaq (symbol: SVC). As of February 22, 2024, there were 408 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.
However, the timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our results of operations, our financial condition, requirements to maintain our qualification for taxation as a REIT, the availability to us of debt and equity capital, our expectations of our future capital requirements and operating performance, including our FFO and our Normalized FFO and other factors deemed relevant by our Board of Trustees in its discretion.
However, the timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO and our Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields 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 distributions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparable Hotels* No. of Hotels No. of Rooms or Suites Occupancy ADR RevPAR Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31, Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change Sonesta (1) Full Service 22 7,149 60.4 % 47.4 % 13.0 pts $ 150.40 $ 132.07 13.9 % $ 90.84 $ 62.60 45.1 % Royal Sonesta (1) Full Service 16 5,291 52.2 % 36.3 % 15.9 pts 236.67 190.05 24.5 % 123.54 68.99 79.1 % Radisson Hotel Full Service 5 1,149 64.1 % 50.4 % 13.7 pts 133.59 105.23 27.0 % 85.63 53.04 61.4 % Crowne Plaza Full Service 1 495 54.4 % 46.6 % 7.8 pts 132.27 111.83 18.3 % 71.95 52.11 38.1 % Country Inn and Suites Full Service 3 430 62.8 % 50.0 % 12.8 pts 136.92 109.10 25.5 % 85.99 54.55 57.6 % Full Service Total/Average 47 14,514 57.5 % 43.7 % 13.8 pts 176.67 145.40 21.5 % 101.59 63.54 59.9 % Sonesta Select (1) Select Service 45 6,579 51.1 % 37.0 % 14.1 pts 117.49 105.56 11.3 % 60.04 39.06 53.7 % Hyatt Place Select Service 17 2,107 67.4 % 60.7 % 6.7 pts 119.00 101.76 16.9 % 80.21 61.77 29.9 % Courtyard Select Service 13 1,813 55.5 % 50.7 % 4.8 pts 119.01 103.14 15.4 % 66.05 52.29 26.3 % Select Service Total/Average 75 10,499 55.1 % 44.1 % 11.0 pts 118.13 104.03 13.6 % 65.09 45.88 41.9 % Sonesta ES Suites (1) Extended Stay 60 7,643 69.3 % 66.7 % 2.6 pts 124.90 105.72 18.1 % 86.56 70.52 22.7 % Sonesta Simply Suites (1) Extended Stay 50 6,366 71.2 % 68.8 % 2.4 pts 86.18 72.37 19.1 % 61.36 49.79 23.2 % Residence Inn Extended Stay 3 342 64.0 % 57.2 % 6.8 pts 120.25 110.01 9.3 % 76.96 62.93 22.3 % Extended Stay Total/Average 113 14,351 70.0 % 67.4 % 2.6 pts 107.49 90.81 18.4 % 75.24 61.21 22.9 % Comparable Hotels Total/Average 235 39,364 61.4 % 52.5 % 8.9 pts $ 133.72 $ 110.39 21.1 % $ 82.10 $ 57.95 41.7 % * We generally define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared.
Biggest changeComparable Hotels* No. of Hotels No. of Rooms or Suites Occupancy ADR RevPAR Year Ended December 31, Year Ended December 31, Year Ended December 31, Brand Service Level 2023 2022 Change 2023 2022 Change 2023 2022 Change Sonesta Hotels & Resorts® Full Service 22 7,149 62.4 % 60.4 % 2.0 pts $ 152.48 $ 150.40 1.4 % $ 95.15 $ 90.84 4.7 % Royal Sonesta Hotels® Full Service 17 5,663 56.5 % 52.2 % 4.3 pts 237.63 236.07 0.7 % 134.26 123.23 9.0 % Radisson® Hotels & Resorts Full Service 5 1,149 62.5 % 64.1 % (1.6) pts 146.45 133.59 9.6 % 91.53 85.63 6.9 % Crowne Plaza® Full Service 1 495 60.6 % 54.4 % 6.2 pts 141.30 132.27 6.8 % 85.63 71.95 19.0 % Country Inn & Suites® by Radisson Full Service 3 430 65.9 % 62.8 % 3.1 pts 137.17 136.92 0.2 % 90.40 85.99 5.1 % Full Service Total/Average 48 14,886 60.2 % 57.4 % 2.8 pts 181.71 177.85 2.2 % 109.39 102.09 7.2 % Sonesta Select® Select Service 44 6,427 54.9 % 51.6 % 3.3 pts 118.45 117.76 0.6 % 65.03 60.76 7.0 % Hyatt Place® Select Service 17 2,107 65.3 % 67.4 % (2.1) pts 122.23 119.00 2.7 % 79.82 80.21 (0.5) % Select Service Total/Average 61 8,534 57.5 % 55.5 % 2.0 pts 119.51 118.13 1.2 % 68.72 65.56 4.8 % Sonesta ES Suites® Extended Stay 60 7,643 67.8 % 69.3 % (1.5) pts 128.33 124.90 2.7 % 87.01 86.56 0.5 % Sonesta Simply Suites® Extended Stay 50 6,366 68.5 % 71.2 % (2.7) pts 90.63 86.18 5.2 % 62.08 61.36 1.2 % Extended Stay Total/Average 110 14,009 68.1 % 70.2 % (2.1) pts 111.17 107.21 3.7 % 75.71 75.26 0.6 % Comparable Hotels Total/Average 219 37,429 62.6 % 61.7 % 0.9 pts $ 139.86 $ 135.36 3.3 % $ 87.55 $ 83.52 4.8 % * We define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared.
An economic recession or continued or intensified disruptions in the financial markets could adversely affect our financial condition, operations at our hotels, our tenants, and their ability or willingness to renew our leases or pay rent to us, may restrict our ability to obtain new or replacement financing, would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.
An economic recession or continued or intensified disruptions in the financial markets could adversely affect our financial condition, operations at our hotels, our tenants and their ability or willingness to renew our leases or pay rent to us, may restrict our ability to obtain new or replacement financing, would likely increase our cost of capital, and may cause the values of our properties to decline.
Our hotel managers and tenants derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our owner's priority returns and rents, from their separate resources.
Our hotel managers and tenants derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent these parties themselves fund our owner’s priority returns and rents, from their separate resources.
FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us.
FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any gains and losses on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us.
The return payments to us under certain of our management agreements depend exclusively upon earnings at these properties and, accordingly, our income and cash flows from these properties reflect the seasonality of the hotel industry. 72 Table of Contents Impact of Climate Change Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns.
The return payments to us under certain of our management agreements depend exclusively upon earnings at these properties and, accordingly, our income and cash flows from these properties reflect the seasonality of the hotel industry. 70 Table of Contents Impact of Climate Change Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns.
If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value. We determine the fair value for our long lived assets and indefinite lived intangible assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques.
If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value. We determine the fair value for our long lived assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques.
For transactions that qualify as business combinations we allocate the excess, if any, of the consideration over the fair value of assets acquired to goodwill.
For transactions that qualify as business combinations we allocate the excess, if any, of the consideration over the fair value of the net assets acquired to goodwill.
For further information about these and other such relationships and related person transactions, see Notes 4, 5, 9 and 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.
For further information about these and other such relationships and related person transactions, see Notes 4, 5, 8 and 9 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC, including our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2023.
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 operations, capital expenditures, investments, future debt maturities, distributions to our shareholders and other general business purposes.
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 the incurrence of debt to fund our operations, capital expenditures, investments, future debt maturities, distributions to our shareholders and other general business purposes.
We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. 65 Table of Contents Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.
We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.
EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period, 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.
EBITDAR amounts used to determine rent coverage are generally for the latest twelve-month period, based on the most recent operating information, if any, furnished by our tenants. Operating statements furnished by our tenants often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us.
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 63 Table of Contents securities. We may also seek to participate in joint ventures or other arrangements that may provide us additional sources of financing.
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.
Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then perceived creditworthiness. We have no control over market conditions.
Our ability to complete, and the costs associated with, future debt transactions depend primarily upon credit market conditions and our then perceived creditworthiness. We have no control over market conditions.
Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.
Although we do not believe it is likely in the foreseeable future, laws that have been enacted or may be enacted in the future to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.
To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement. Tax returns filed for the 2019 through 2022 tax years are subject to examination by taxing authorities.
To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement. Tax returns filed for the 2020 through 2023 tax years are subject to examination by taxing authorities.
Our credit agreement and our unsecured senior notes, indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR ceasing to act as our business manager.
Our credit agreement, net lease mortgage notes, secured senior notes and unsecured senior notes, indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR ceasing to act as our business manager.
For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020 please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Hotel operating revenues.
For a comparison of consolidated results for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022. Hotel operating revenues.
As a result, we believe using this implied coverage metric provides a more reasonable estimated representation of recent operating results and the financial condition for those tenants. Our net lease properties generated coverage of 3.00x and 2.58x as of December 31, 2022 and 2021, respectively.
As a result, we believe using this implied coverage metric provides a more reasonable estimated representation of recent operating results and the financial condition for those tenants. Our net lease properties generated coverage of 2.46x and 3.00x as of December 31, 2023 and 2022, respectively.
We recorded a $791 loss on early extinguishment of debt in the 2022 period related to the write off of deferred financing costs and unamortized discounts relating to the amendment of our revolving credit facility and the repayment of $500,000 of unsecured senior notes. Income tax (expense) benefit.
We recorded a $791 loss on early extinguishment of debt in the 2022 period related to the write-off of deferred financing costs and unamortized discounts relating to the amendment of our revolving credit facility and the repayment of certain unsecured senior notes. Income tax benefit.
Loss on asset impairment, net. We recorded a $10,989 loss on asset impairment during the 2022 period to reduce the carrying value of 26 hotels and five net lease properties to their estimated fair value less costs to sell.
We recorded a $10,989 loss on asset impairment during the 2022 period to reduce the carrying value of 26 hotels and five net lease properties to their estimated fair value less costs to sell. Gain on sale of real estate, net.
In 2022, the U.S. hotel industry generally realized increases in ADR, revenue per available room, or RevPAR, and occupancy compared to the corresponding 2021 periods. The following table provides a summary for all our hotels of these revenue metrics for the periods presented which we believe are key indicators of performance at our hotels.
In 2023, the U.S. hotel industry generally realized increases in average daily rate, or ADR, revenue per available room, or RevPAR, and occupancy compared to the corresponding 2022 periods. The following table provides a summary for all of our hotels with these revenue metrics for the periods presented, which we believe are key indicators of performance at our hotels.
A subsidiary guarantor's guarantee of the 2025 Notes and 2027 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s or BBB (or the equivalent) by S&P, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.
A subsidiary guarantor’s guarantee of the 2025 Notes, 2027 Notes and 2031 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, in the case of the 2031 Notes, both agencies, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.
We have determined that each of our wholly owned TRSs is a VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or the Codification.
We have determined that each of our wholly owned TRSs is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification™, or the Codification.
As of December 31, 2022, there was $6,940 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash. 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.
As of December 31, 2023, there was $8,437 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash. Our net lease portfolio leases do not require FF&E escrow deposits and tenants under these leases are generally required to maintain the leased properties, including structural and non-structural components.
In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. 67 Table of Contents Property and Operating Statistics (dollar amounts in thousands) As of December 31, 2022, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 149 distinct brands across 22 industries.
In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. 65 Table of Contents Property and Operating Statistics (dollars in thousands, except hotel statistics) As of December 31, 2023, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 146 distinct brands across 22 industries.
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.
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.
Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. 73 Table of Contents Our calculations of FFO and Normalized FFO for the years ended December 31, 2022, 2021 and 2020 and reconciliations of net income (loss) available for common shareholders, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).
Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. 71 Table of Contents Our calculations of FFO and Normalized FFO for the years ended December 31, 2023 and 2022 and reconciliations of net loss, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).
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.
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. Tenants with no minimum rent required under the lease are excluded.
Hotel Portfolio The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenants by hotel brand for the periods indicated. All operating data presented are based upon the operating results provided by our hotel managers and tenants for the indicated periods.
Hotel Portfolio The following tables summarize the operating statistics, including ADR, RevPAR and occupancy reported to us by our hotel managers by hotel brand for the periods indicated. All operating data presented are based upon the operating results provided by our hotel managers for the indicated periods. We have not independently verified our managers’ operating data.
We had reserves for uncollectable rents of $7,697 and $15,519 as of December 31, 2022 and December 31, 2021, respectively, included in other assets in our consolidated balance sheets.
We had reserves for uncollectable rents of $3,436 and $7,697 as of December 31, 2023 and 2022, respectively, included in other assets in our consolidated balance sheets.
Other factors include, but are not limited to, requirements to satisfy our REIT distribution requirements, 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 factors include, but are not limited to, requirements to satisfy our REIT distribution requirements, the availability to us of debt and equity capital, our dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
As of December 31, 2022, we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement.
As of December 31, 2023, we believe we were in compliance with all of the covenants under our indentures and their supplements, net lease mortgage notes and our credit agreement.
Our remaining $4,450,000 of senior unsecured notes do not have the benefit of any guarantees.
Our remaining $2,775,000 of senior unsecured notes do not have the benefit of any guarantees.
Our 765 net lease properties were leased to 180 tenants as of December 31, 2022. The costs of operating and maintaining our properties are generally paid by the hotel managers as agents for us or by our tenants for their own account.
Our 752 service-focused retail net lease properties were leased to 175 tenants as of December 31, 2023. The costs of operating and maintaining our properties are generally paid by the hotel managers as agents for us or by our tenants for their own account.
(2) Intercompany balances represent receivables from non-guarantor subsidiaries. Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc., TA and Sonesta and others affiliated with them.
(2) Intercompany balances represent payables to non-guarantor subsidiaries. 63 Table of Contents Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc., TA and Sonesta and others affiliated with them.
While we believe we will generally have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.
We may also assume mortgage debt on properties we may acquire or obtain mortgage financing on our existing properties. 61 Table of Contents While we believe we will generally have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.
(3) See page 60 for our definition of coverage. (4) TA is our largest tenant. We lease 177 travel centers (133 under the TravelCenters of America brand and 44 under the Petro Stopping Centers brand) to a subsidiary of TA under master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively.
(3) See page 58 for our definition of coverage. (4) TA is our largest tenant. We lease 176 travel centers (132 under the TravelCenters of America brand and 44 under the Petro Stopping Centers brand) to a subsidiary of TA under five master leases that expire in 2033.
We present RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. We generally define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared.
We present RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. We define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared. For the years ended December 31, 2023 and 2022, our comparable results exclude two hotels.
However, as discussed elsewhere in this Annual Report on Form 10-K, the duration and severity of the COVID-19 pandemic, and the market practices that arose or increase in response to the pandemic, and its impact on economic conditions, as well as the impacts of the current, and possibly future, inflationary conditions, increasing interest rates and a possible recession are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing.
However, as discussed elsewhere in this Annual Report on Form 10-K, the impacts of the current, and possibly future, inflationary conditions, increasing or sustained high interest rates and a possible economic recession 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. Debt Covenants Our debt obligations at December 31, 2022 consisted of $5,700,000 of publicly issued term debt.
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. Debt Covenants Our debt obligations at December 31, 2023 consisted of $5,025,000 aggregate principal amounts of senior notes and $608,569 aggregate principal amounts of mortgage notes.
During the year ended December 31, 2022, we entered into lease renewals for 159,818 rentable square feet (15 properties) at weighted (by rentable square feet) average rents that were 4.9% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 6.3 years.
During the year ended December 31, 2023, we entered into lease renewals for 5,774,455 rentable square feet (214 properties) at weighted (by rentable square feet) average rents that were 9.4% above the prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 10.0 years.
As of December 31, 2022, shown below is the list of our top ten states where our net lease properties are located. No other state represents more than 3% of our net lease annual minimum rents.
(2) See page 67 for our definition of annualized minimum rent. As of December 31, 2023, shown below is the list of our top ten states where our net lease properties are located. No other state represents more than 3% of our net lease annualized minimum rents.
During the year ended December 31, 2022, certain of our hotel managers deposited $9,268 to these accounts and spent $4,756 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.
During the year ended December 31, 2023, certain of our hotel managers deposited $6,855 to these accounts and spent $5,406 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.
(5) Consists of 170 tenants with an average investment of $7,077 and average annual minimum rent of $482. 70 Table of Contents As of December 31, 2022, our net lease tenants operated across 21 distinct industries within the service-oriented retail sector of the U.S. economy.
(5) Consists of 165 tenants with an average investment of $2,706 and an average annual minimum rent of $170 per property. 68 Table of Contents As of December 31, 2023, our net lease tenants operated across 21 distinct industries within the service-focused retail sector of the U.S. economy.
The decrease in interest expense is due to lower average outstanding borrowings, partially offset by higher weighted average interest rates on borrowings under our revolving credit facility during the 2022 period. Loss on early extinguishment of debt .
The decrease in interest expense is due to lower outstanding debt balances, partially offset by higher weighted average interest rates in the 2023 period. Loss on early extinguishment of debt .
If indicators of impairment are present, we evaluate the carrying value of the related investment by comparing it to the expected future undiscounted cash flows to be generated from that investment. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.
If indicators of impairment are present, we evaluate the carrying value of the related investment by comparing it to the expected future undiscounted cash flows to be generated from that investment.
If we misjudge or estimate incorrectly or if future operating profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate, fail to record a charge when we should have done so or the amount of such charges may be inaccurate. 66 Table of Contents Certain of our properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, operating leases.
If we misjudge or estimate incorrectly or if future operating profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate, fail to record a charge when we should have done so or the amount of such charges may be inaccurate.
Our term debt maturities (other than our revolving credit facility) as of December 31, 2022 were as follows: Year Maturity 2023 $ 500,000 2024 1,175,000 2025 1,150,000 2026 800,000 2027 850,000 2028 400,000 2029 425,000 2030 400,000 $ 5,700,000 None of our unsecured debt obligations require principal or sinking fund payments prior to their maturity dates.
Our debt maturities (other than our revolving credit facility) as of December 31, 2023 were as follows: Year Maturity 2024 $ 1,958 2025 1,151,958 2026 801,958 2027 851,958 2028 1,000,737 2029 425,000 2030 400,000 2031 1,000,000 $ 5,633,569 None of our senior note debt obligations require principal or sinking fund payments prior to their maturity dates.
Excludes the results of hotels sold during the periods presented. (1) Includes operator data for periods prior to when certain hotels were managed by Sonesta. 68 Table of Contents Net Lease Portfolio As of December 31, 2022, our net lease properties were 97.6% occupied and we had 23 properties available for lease.
Excludes the results of hotels sold during the periods presented and includes data for one hotel for periods prior to when we acquired it. 66 Table of Contents Net Lease Portfolio As of December 31, 2023, our net lease properties were 97.1% occupied and we had 22 properties available for lease.
The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands): Year Ended December 31, 2022 2021 Cash and cash equivalents and restricted cash at the beginning of the period $ 947,418 $ 91,456 Net cash provided by (used in): Operating activities 243,127 49,904 Investing activities 397,253 (101,310) Financing activities (1,542,378) 907,368 Cash and cash equivalents and restricted cash at the end of the period $ 45,420 $ 947,418 The increase in cash provided by operating activities for the year ended December 31, 2022 as compared to the prior year is primarily due to higher returns and rents earned from our hotel and net lease portfolios and lower interest expense in 2022.
The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands): Year Ended December 31, 2023 2022 Cash and cash equivalents and restricted cash at the beginning of the period $ 45,420 $ 947,418 Net cash provided by (used in): Operating activities 485,549 243,127 Investing activities (29,577) 397,253 Financing activities (303,562) (1,542,378) Cash and cash equivalents and restricted cash at the end of the period $ 197,830 $ 45,420 58 Table of Contents The increase in cash provided by operating activities for the 2023 period compared to the prior year period is primarily due to $188,000 of prepaid rent received from TA, higher returns earned from our hotel portfolio and lower interest expense in the 2023 period.
Overview (dollar amounts in thousands, except share amounts and per room hotel data) We are a REIT organized under the laws of the State of Maryland. As of December 31, 2022, we owned 1,003 properties in 46 states, the District of Columbia, Canada and Puerto Rico. Business Environment and Outlook.
Overview (dollars in thousands, except per share amounts and per room hotel data) We are a REIT organized under the laws of the State of Maryland. As of December 31, 2023, we owned 973 properties in 46 states, the District of Columbia, Canada and Puerto Rico. In response to significant and prolonged increases in inflation, the U.S.
We expect the majority of these pending sales to be completed by the end of the first quarter of 2023. We continue to market two net lease properties with an aggregate of 7,283 square feet for sale. We expect to use the proceeds from these asset sales for general business purposes, which may include the repayment of debt.
We continue to market five net lease properties with an aggregate of 98,422 square feet for sale. We expect to use the proceeds from these asset sales for general business purposes, which may include the repayment of debt. BP completed the TA Merger on May 15, 2023.
When we renovate our hotels we generally use energy efficient products including but not limited to lighting, windows and HVAC equipment and many of the appliances in our extended stay hotels are Energy Star rated.
When we renovate our hotels we generally use energy efficient products including but not limited to lighting, windows and HVAC equipment and many of the appliances in our extended stay hotels are Energy Star rated. We or our tenants or managers have also installed car battery charging stations at some of the properties to accommodate environmentally aware customers.
Simultaneously with the pricing of the notes, we announced the early redemption of our outstanding 4.50% senior notes due 2023 at a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest to, but excluding the date of redemption.
We redeemed our 4.50% senior notes due in 2023 at a redemption price equal to the principal amount of $500,000, plus accrued and unpaid interest to, but excluding the date of redemption in March 2023, using the proceeds from these net lease mortgage notes.
Tenant Brand Affiliation No. of Properties Investment (1) Percent of Total Investment Annualized Minimum Rent (2) Percent of Total Annualized Minimum Rent (2) Coverage (3) 1. TravelCenters of America TravelCenters of America / Petro Stopping Centers 177 $ 3,310,415 64.8 % $ 246,110 66.1 % 2.74 x (4) 2. Universal Pool Co., Inc.
Tenant Brand Affiliation No. of Properties Investment (1) Percent of Total Investment Annualized Minimum Rent (2) Percent of Total Annualized Minimum Rent (2) Coverage (3) 1. TravelCenters of America Inc. TravelCenters of America / Petro Stopping Centers 176 $ 3,274,133 64.7 % $ 254,000 68.2 % 1.91 x (4) 2. Universal Pool Co., Inc.
During the year ended December 31, 2022, we funded $115,927 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels. We currently expect to fund $250,000 during 2023 for capital improvements to certain hotels using cash on hand.
During the year ended December 31, 2023, we funded $226,590 for capital improvements in excess of FF&E reserves available to our hotels. We currently expect to fund $250,000 during 2024 for capital improvements to certain hotels using cash on hand and borrowings under our revolving credit facility.
We mitigate these risks by procuring, or requiring our managers or tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change.
Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our managers or tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change.
All Hotels* No. of Hotels No. of Rooms or Suites Occupancy ADR RevPAR Service Level Year Ended December 31, Year Ended December 31, Year Ended December 31, Brand 2022 2021 Change 2022 2021 Change 2022 2021 Change Sonesta (1) Full Service 23 7,368 60.4 % 47.4 % 13.0 pts $ 150.40 $ 132.07 13.9 % $ 90.84 $ 62.60 45.1 % Royal Sonesta (1) Full Service 17 5,663 52.2 % 35.7 % 16.5 pts 236.07 190.02 24.2 % 123.23 67.84 81.6 % Radisson Hotel Full Service 5 1,149 64.1 % 50.4 % 13.7 pts 133.59 105.23 27.0 % 85.63 53.04 61.4 % Crowne Plaza Full Service 1 495 54.4 % 46.6 % 7.8 pts 132.27 111.83 18.3 % 71.95 52.11 38.1 % Country Inn and Suites Full Service 3 430 62.8 % 50.0 % 12.8 pts 136.92 109.10 25.5 % $ 85.99 $ 54.55 57.6 % Full Service Total/Average 49 15,105 57.4 % 43.4 % 14.0 pts 177.85 145.78 22.0 % 102.09 63.27 61.4 % Sonesta Select (1) Select Service 45 6,579 51.1 % 37.0 % 14.1 pts 117.49 105.56 11.3 % 60.04 39.06 53.7 % Hyatt Place Select Service 17 2,107 67.4 % 60.7 % 6.7 pts 119.00 101.76 16.9 % 80.21 61.77 29.9 % Courtyard Select Service 13 1,813 55.5 % 50.7 % 4.8 pts 119.01 103.14 15.4 % 66.05 52.29 26.3 % Select Service Total/Average 75 10,499 55.1 % 44.1 % 11.0 pts 118.13 104.03 13.6 % 65.09 45.88 41.9 % Sonesta ES Suites (1) Extended Stay 60 7,643 69.3 % 66.7 % 2.6 pts 124.90 105.72 18.1 % 86.56 70.52 22.7 % Sonesta Simply Suites (1) Extended Stay 51 6,464 70.4 % 68.6 % 1.8 pts 86.18 72.25 19.3 % 60.67 49.56 22.4 % Residence Inn Extended Stay 3 342 64.0 % 57.2 % 6.8 pts 120.25 110.01 9.3 % 76.96 62.93 22.3 % Extended Stay Total/Average 114 14,449 69.7 % 67.3 % 2.4 pts 107.49 90.66 18.6 % 74.92 61.01 22.8 % All Hotels Total/Average 238 40,053 61.3 % 52.3 % 9.0 pts $ 134.47 $ 110.47 21.7 % $ 82.43 $ 57.78 42.7 % * Results of all hotels owned as of December 31, 2022.
All Hotels* No. of Hotels No. of Rooms or Suites Occupancy ADR RevPAR Year Ended December 31, Year Ended December 31, Year Ended December 31, Brand Service Level 2023 2022 Change 2023 2022 Change 2023 2022 Change Sonesta Hotels & Resorts® Full Service 23 7,399 62.5 % 60.4 % 2.1 pts $ 157.60 $ 158.00 (0.3) % $ 98.50 $ 95.43 3.2 % Royal Sonesta Hotels® Full Service 17 5,663 56.5 % 52.2 % 4.3 pts 237.63 236.07 0.7 % 134.26 123.23 9.0 % Radisson® Hotels & Resorts Full Service 5 1,149 62.5 % 64.1 % (1.6) pts 146.45 133.59 9.6 % 91.53 85.63 6.9 % Crowne Plaza® Full Service 1 495 60.6 % 54.4 % 6.2 pts 141.30 132.27 6.8 % 85.63 71.95 19.0 % Country Inn & Suites® by Radisson Full Service 3 430 65.9 % 62.8 % 3.1 pts 137.17 136.92 0.2 % 90.40 85.99 5.1 % Full Service Total/Average 49 15,136 60.3 % 57.4 % 2.9 pts 183.77 181.21 1.4 % 110.81 104.01 6.5 % Sonesta Select® Select Service 44 6,427 54.9 % 51.6 % 3.3 pts 118.45 117.76 0.6 % 65.03 60.76 7.0 % Hyatt Place® Select Service 17 2,107 65.3 % 67.4 % (2.1) pts 122.23 119.00 2.7 % 79.82 80.21 (0.5) % Select Service Total/Average 61 8,534 57.5 % 55.5 % 2.0 pts 119.51 118.13 1.2 % 68.72 65.56 4.8 % Sonesta ES Suites® Extended Stay 60 7,643 67.8 % 69.3 % (1.5) pts 128.33 124.90 2.7 % 87.01 86.56 0.5 % Sonesta Simply Suites® Extended Stay 51 6,464 67.8 % 70.4 % (2.6) pts 90.63 86.18 5.2 % 61.45 60.67 1.3 % Extended Stay Total/Average 111 14,107 67.8 % 69.8 % (2.0) pts 111.17 107.21 3.7 % 75.37 74.83 0.7 % All Hotels Total/Average 221 37,777 62.5 % 61.6 % 0.9 pts $ 140.94 $ 136.89 3.0 % $ 88.09 $ 84.32 4.5 % * Includes results of all hotels owned as of December 31, 2023.
An impairment charge is recorded if the fair value is determined to be lower than the carrying value. We periodically evaluate our equity method investments for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.
If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value. 64 Table of Contents We periodically evaluate our equity method investment for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.
(6) We recorded a $791 loss on early extinguishment of debt in the 2022 period related to the write off of deferred financing costs and unamortized discounts relating to our amendment to our credit agreement and the repayment of 74 Table of Contents $500,000 of unsecured notes.
We recorded a $1,524 loss on early extinguishment of debt in the 2023 period related to the write-off of deferred financing costs and unamortized discounts in connection with the repayment of certain senior unsecured notes and the write-off of certain deferred financing costs relating to the amendment of our revolving credit facility.
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 December 31, 2022 Real estate properties, net (1) $ 5,316,318 Intercompany balances (2) 580,684 Other assets, net 723,092 Indebtedness, net $ 5,655,530 Other liabilities 366,936 Year Ended December 31, 2022 Revenues $ 1,722,397 Expenses 1,989,711 Net loss $ (267,314) (1) Real estate properties, net as of December 31, 2022 includes $191,662 of properties owned directly by us and not included in the assets of the subsidiary guarantors.
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 December 31, 2023 Real estate properties, net (1) $ 4,372,682 Other assets, net 552,196 Indebtedness, net $ 4,961,344 Intercompany balances (2) 752,146 Other liabilities 395,433 Year Ended December 31, 2023 Revenues $ 1,629,129 Expenses 1,767,742 Net loss $ (138,613) (1) Real estate properties, net as of December 31, 2023 includes $169,158 of properties owned directly by us and not included in the assets of the subsidiary guarantors.
Also, during the year ended December 31, 2022, we entered into new leases for an aggregate of 224,127 rentable square feet (eight properties) at weighted (by rentable square feet) average rents that were 3.3% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 13.8 years.
We also entered into new leases for 161,875 rentable square feet (seven properties) at weighted (by rentable square feet) average rents that were 21.9% above the prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 13.0 years.
Net Lease Portfolio. As of December 31, 2022, we owned 765 service-oriented retail properties with 13,374,325 square feet and annual minimum rent of $372,418, and 180 tenants subject to “triple net” leases, where the tenants are generally responsible for payment of operating expenses and capital expenditures.
As of December 31, 2023, we owned 752 service-focused retail net lease properties with an aggregate of 13,341,172 square feet leased to 175 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $372,319.
We recorded a $47,818 net gain on sale of real estate in 2022 in connection with the sales of 65 hotels and 21 net lease properties and a $11,522 net gain on sale of real estate in 2021 in connection with the sales of seven hotels and eleven net lease properties. Unrealized (losses) gains on equity securities, net.
We recorded a $43,239 net gain on sale of real estate during the 2023 period in connection with the sales of 18 hotels and 13 net lease properties, and a $47,818 net gain on sale of real estate in the 2022 period in connection with the sales of 65 hotels and 21 net lease properties.
Accordingly, if that debt rating is downgraded, our interest expense and related costs under our revolving credit facility would increase. Our public debt indentures and their supplements contain cross default provisions to any other debt of $20,000 or more ($50,000 or more in the case of our indenture entered into in February 2016 and its supplements).
Acceleration and Cross-Default Our indentures and their supplements contain cross default provisions to any other debt of $20,000 or more ($50,000 or more in the case of our indenture entered into in February 2016 and its supplements, and our indenture entered into in November 2023).
Our property manager, RMR, is a member of the Energy Star program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “Energy Star” partner program, and a member of the U.S.
Department of Energy that is focused on promoting energy efficiency at commercial properties through its “Energy Star” partner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its Leadership in Energy and Environmental Design, or LEED ® , green building program.
We paid this amount on February 16, 2023 using cash on hand. 61 Table of Contents 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 an $800,000 revolving credit facility which is governed by our credit agreement.
In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $650,000 secured revolving credit facility which is governed by the amended and restated credit agreement that we entered into on June 29, 2023.
The decrease in depreciation and amortization - net lease portfolio is a result of certain of our depreciable assets becoming fully depreciated since January 1, 2021 ($13,725) and the result of the sale of certain properties since January 1, 2021 ($26,307). General and administrative.
The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets becoming fully depreciated since January 1, 2022 and our sale of certain net lease properties since January 1, 2022 ($15,396), partially offset by depreciation and amortization related to capital expenditures since January 1, 2022 ($3,529). General and administrative.
During the year ended December 31, 2022, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows: Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions January 13, 2022 January 24, 2022 February 17, 2022 $ 0.01 $ 1,651 April 14, 2022 April 25, 2022 May 19, 2022 0.01 1,651 July 14, 2022 July 25, 2022 August 18, 2022 0.01 1,651 October 13, 2022 October 24, 2022 November 17, 2022 0.20 33,091 $ 0.23 $ 38,044 On January 12, 2023, we declared a regular quarterly distribution to common shareholders of record on January 23, 2023 of $0.20 per share, or $33,091.
During the year ended December 31, 2023, we funded $5,134 of capital contributions to Sonesta to support their growth initiatives, including their franchising efforts, using cash on hand. 59 Table of Contents During the year ended December 31, 2023, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows: Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions January 12, 2023 January 23, 2023 February 16, 2023 $ 0.20 $ 33,090 April 13, 2023 April 24, 2023 May 18, 2023 0.20 33,089 July 13, 2023 July 24, 2023 August 17, 2023 0.20 33,096 October 12, 2023 October 23, 2023 November 16, 2023 0.20 33,155 $ 0.80 $ 132,430 On January 11, 2024, we declared a regular quarterly distribution to common shareholders of record on January 22, 2024 of $0.20 per share, or $33,154.
In addition, the income we receive from our hotels in Canada and Puerto Rico is subject to taxes in those jurisdictions and we are subject to taxes in certain states where we have properties despite our qualification for taxation as a REIT. 60 Table of Contents Our Investment and Financing Liquidity and Capital Resources 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.
Our Investment and Financing Liquidity and Capital Resources Our hotel operating agreements generally provide that, if necessary, we may provide our managers with funding for capital improvements to our hotels in excess of amounts otherwise available in escrowed FF&E reserves or when no FF&E reserves are available.
Unrealized (losses) gains on equity securities, net represent the adjustment required to adjust the carrying value of our investment in shares of TA common stock to its fair value as of December 31, 2022 and 2021. Interest income. The increase in interest income is due to higher interest rates during the 2022 period. Interest expense.
Gain (loss) on equity securities, net. G ain (loss) on equity securities, net represents the adjustment to the carrying value of our former investment in shares of TA common stock to its fair value. Interest income. The increase in interest income is primarily due to higher interest rates and higher average cash balances invested during the 2023 period. Interest expense.
These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a leased property, appropriate present value discount rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.
The classification of a lease as finance, sales-type, direct financing or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a leased property, appropriate present value discount rates and future cash flows.
As of February 24, 2023, we have no amounts outstanding under our credit facility and $616,867 of cash or cash equivalents. 54 Table of Contents In February 2023, one of our subsidiaries issued $610,200 in aggregate principal amount of net lease mortgage notes.
We had no borrowings outstanding under the facility as of December 31, 2023. 60 Table of Contents In February 2023, one of our subsidiaries, SVC ABS LLC, or the Issuer, issued $610,200 in aggregate principal amount of net lease mortgage notes.
As of December 31, 2022, our hotel managers included Sonesta (196 hotels), Hyatt (17 hotels), Radisson (eight hotels), Marriott (16 hotels) and IHG (one hotel). TA is our largest tenant (177 travel centers). On January 7, 2022, we and Sonesta amended and restated our management agreements effective January 1, 2022.
As of December 31, 2023, our hotel managers included Sonesta (195 hotels), Hyatt (17 hotels), Radisson (eight hotels), and IHG (one hotel). TA is our largest tenant (176 travel centers).
For the years ended December 31, 2022 and 2021, our comparable results excluded three hotels that had suspended operations during part of the periods presented.
For the years ended December 31, 2023 and 2022, our comparable results exclude two hotels; one of the hotels was not owned for the entirety of the periods presented and the other hotel suspended operations during part of the periods presented.
During the year ended December 31, 2022, we sold 65 hotels with 8,296 rooms for an aggregate sales price of $543,413, excluding closing costs, and 21 net lease properties with 138,638 square feet for an aggregate sales price of $16,435, excluding closing costs.
During the year ended December 31, 2023, we sold 18 hotels with an aggregate of 2,526 rooms for an aggregate sales price of $157,230, excluding closing costs, and 13 net lease properties with an aggregate of 160,310 square feet for an aggregate sales price of $13,095, excluding closing costs.
Express Oil Change 23 49,724 1.0 % 3,717 1.0 % 4.32 x 9. Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,215 0.9 % 5.80 x 10. Automotive Remarketing Group, Inc. America's Auto Auction 6 38,314 0.8 % 3,216 0.9 % 5.88 x Subtotal, top 10 309 3,904,743 76.4 % 290,369 78.0 % 2.93 x 11.
Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,247 0.9 % 5.02 x 10. Automotive Remarketing Group, Inc. America's Auto Auction 6 38,314 0.8 % 3,216 0.9 % 7.09 x Subtotal, Top 10 305 3,852,996 76.1 % 296,148 79.6 % 2.23 x 11.
Our net lease portfolio was 97.6% occupied as of December 31, 2022 with a weighted (by annual minimum rent) lease term of 9.6 years, operating under 138 brands in 21 distinct industries. TA is our largest tenant.
Our net lease properties were 97.1% occupied as of December 31, 2023 with a weighted (by annual minimum rent) average lease term of 8.8 years, operating under 137 brands in 21 distinct industries. TA is our largest tenant. On May 15, 2023, BP completed the TA Merger and we amended our leases with TA.
The Great Escape 14 98,242 1.9 % 7,711 2.1 % 7.19 x 3. Healthy Way of Life II, LLC Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 1.79 x 4. American Multi-Cinema, Inc. AMC Theatres 9 82,488 1.6 % 6,716 1.8 % 1.73 x 5.
The Great Escape 14 98,242 1.9 % 7,711 2.1 % 6.20 x 3. Healthy Way of Life II, LLC Life Time Fitness 3 92,617 1.8 % 5,770 1.5 % 2.35 x 4. Styx Acquisition, LLC Buehler's Fresh Foods 5 76,469 1.5 % 5,657 1.5 % 3.08 x 5. Professional Resource Development, Inc.
The increase in hotel operating revenues is primarily a result of higher occupancies and higher average rates at certain of our hotels in the 2022 period and the greater negative impact the COVID-19 pandemic had on our hotels in the 2021 period ($441,676), partially offset by the sale of certain of our hotels since January 1, 2021 ($79,010).
The increase in hotel operating revenues is primarily a result of higher occupancies and average rates at certain of our hotels in the 2023 period ($123,238), partially offset by the sale of certain of our hotels since January 1, 2022 ($112,548). Additional operating statistics of our hotels are included in the tables on page 66. Rental income.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+4 added−5 removed3 unchanged
Biggest changeFixed Rate Debt At December 31, 2022, our outstanding publicly tradable debt consisted of twelve issues of fixed rate, senior notes: Principal Balance Annual Interest Rate Annual Interest Expense Maturity Interest Payments Due $ 500,000 4.500 % $ 22,500 2023 Semi-Annually 350,000 4.650 % 16,275 2024 Semi-Annually 825,000 4.350 % 35,888 2024 Semi-Annually 350,000 4.500 % 15,750 2025 Semi-Annually 800,000 7.500 % 60,000 2025 Semi-Annually 350,000 5.250 % 18,375 2026 Semi-Annually 450,000 4.750 % 21,375 2026 Semi-Annually 400,000 4.950 % 19,800 2027 Semi-Annually 450,000 5.500 % 24,750 2027 Semi-Annually 400,000 3.950 % 15,800 2028 Semi-Annually 425,000 4.950 % 21,038 2029 Semi-Annually 400,000 4.375 % 17,500 2030 Semi-Annually $ 5,700,000 $ 289,051 No principal repayments are due under these notes until maturity.
Biggest changeFixed Rate Debt At December 31, 2023, our outstanding fixed rate debt consisted of the following: Debt Principal Balance Annual Interest Rate Annual Interest Expense Maturity Interest Payments Due Senior unsecured notes $ 350,000 4.500 % $ 15,750 2025 Semi-Annually Senior unsecured notes 800,000 7.500 % 60,000 2025 Semi-Annually Senior unsecured notes 350,000 5.250 % 18,375 2026 Semi-Annually Senior unsecured notes 450,000 4.750 % 21,375 2026 Semi-Annually Senior unsecured notes 400,000 4.950 % 19,800 2027 Semi-Annually Senior unsecured notes 450,000 5.500 % 24,750 2027 Semi-Annually Senior unsecured notes 400,000 3.950 % 15,800 2028 Semi-Annually Net lease mortgage notes 608,569 5.600 % 34,080 2028 Monthly Senior unsecured notes 425,000 4.950 % 21,038 2029 Semi-Annually Senior unsecured notes 400,000 4.375 % 17,500 2030 Semi-Annually Senior secured notes 1,000,000 8.625 % 86,250 2031 Semi-Annually $ 5,633,569 $ 334,718 No principal repayments are due under our unsecured or secured senior notes until maturity.
(2) Based on diluted weighted average common shares outstanding for the year ended December 31, 2022. The foregoing table shows the impact of an immediate change in floating interest rates as of December 31, 2022. If interest rates were to change gradually over time, the impact would be spread over time.
(2) Based on diluted weighted average common shares outstanding for the year ended December 31, 2023. The foregoing table shows the impact of an immediate change in floating interest rates as of December 31, 2023. If interest rates were to change gradually over time, the impact would be spread over time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands) We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands) We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives.
Based on the balances outstanding at December 31, 2022 and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in interest rates would change the fair value of those debt obligations by approximately $140,089.
Based on the balances outstanding at December 31, 2023 and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in interest rates would change the fair value of those debt obligations by approximately $174,526.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.
Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the fair value of our fixed rate debt. The U.S.
Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the fair value of our fixed rate debt. In response to significant and prolonged increases in inflation, the U.S.
Generally, a change in interest rates would not affect the value of this floating rate debt but would affect our operating results. 76 Table of Contents The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2022 if we were fully drawn on our revolving credit facility: Impact of Increase in Interest Rates Interest Rate Per Year (1) Outstanding Debt Total Interest Expense Per Year Annual Per Share Impact (2) At December 31, 2022 6.79 % $ 800,000 $ 55,074 $ 0.33 One percentage point increase 7.79 % $ 800,000 $ 63,186 $ 0.38 (1) Weighted average based on LIBOR plus a premium, which was 250 basis points per annum at December 31, 2022.
Generally, a change in interest rates would not affect the value of this floating rate debt but would affect our operating results. 73 Table of Contents The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2023 if we were fully drawn on our revolving credit facility: Impact of Increase in Interest Rates Interest Rate Per Year (1) Outstanding Debt Total Interest Expense Per Year Annual Per Share Impact (2) At December 31, 2023 7.88 % $ 650,000 $ 51,220 $ 0.31 One percentage point increase 8.88 % $ 650,000 $ 57,720 $ 0.35 (1) Based on SOFR plus a premium, which was 250 basis points per annum at December 31, 2023.
In addition, upon renewal or refinancing of our revolving credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics.
Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically SOFR. In addition, upon renewal or refinancing of our revolving credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics.
Because these notes require interest at fixed rates, changes in market interest rates during the term of these debts will not affect our interest obligations. If these notes were refinanced at interest rates which are one percentage point higher than the rates shown above, our per annum interest cost would increase by approximately $57,000.
If these notes were refinanced at interest rates which are one percentage point higher than the rates shown above, our per annum interest cost would increase by approximately $56,336.
Each of these fixed rate unsecured debt arrangements allows us to make repayments earlier than the stated maturity date. We are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder.
In some cases, we are not allowed to make early repayment prior to a cutoff date and we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder.
Floating Rate Debt At December 31, 2022, we had no amounts outstanding under our revolving credit facility. The maturity date of our revolving credit facility is July 15, 2023. No principal repayments are required under our revolving credit facility prior to maturity and repayments may be made and redrawn subject to conditions at any time without penalty.
No principal repayments are required under our revolving credit facility prior to maturity and repayments may be made and redrawn subject to conditions at any time without penalty. Borrowings under our revolving credit facility are in U.S. dollars and require interest to be paid at a rate of SOFR plus premiums.
Any alternative interest rate index that may replace LIBOR may result in changes to the amount of interest we are required to pay and could result in our paying increased interest amounts. Item 8. Financial Statements and Supplementary Data The information required by this item is included in Part IV, Item 15 of this Annual Report on Form 10-K.
Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates. Item 8. Financial Statements and Supplementary Data The information required by this item is included in Part IV, Item 15 of this Annual Report on Form 10-K. Item 9.
Removed
Federal Reserve has raised interest rates several times since the beginning of 2022 in an effort to combat high inflation and has signaled that further increases are likely to occur.
Added
Our net lease mortgage notes require principal and interest payments through maturity pursuant to amortization schedules. Because these notes require interest at fixed rates, changes in market interest rates during the term of these debts will not affect our interest obligations.
Removed
Borrowings under our revolving credit facility are in U.S. dollars and require annual interest to be paid at the rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically LIBOR and to changes in our credit ratings.
Added
Federal Reserve has raised interest rates multiple times since the beginning of 2022. Although the U.S. Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.
Removed
Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates. LIBOR Phase Out We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR.
Added
Our fixed rate debt arrangements may allow us to make repayments earlier than the stated maturity date.
Removed
LIBOR has been phased out for new contracts and is expected to be phased out for pre-existing contracts by June 30, 2023. We currently expect that the determination of interest under our revolving credit facility will be revised as provided under our credit agreement or amended as necessary to provide for an alternative interest rate index.
Added
Floating Rate Debt At December 31, 2023, we had no amounts outstanding under our revolving credit facility. The maturity date of our revolving credit facility is June 29, 2027, and, subject to our meeting certain conditions, including our payment of an extension fee, we have an option to extend the stated maturity date of the facility by two six-month periods.
Removed
We expect that the alternative interest rate index would likely be the secured overnight financing rate, or SOFR, because interest rates based on SOFR have gained significant market adoption as the replacement to LIBOR for debt facilities similar to ours.

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