(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |
Title of Each Class | Trading Symbol | Name of each Exchange on which Registered | ||
☒ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company | ||||
Page | ||
June 30, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Real estate properties: | ||||||||
Land | $ | $ | ||||||
Buildings, improvements and equipment | ||||||||
Total real estate properties, gross | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total real estate properties, net | ||||||||
Acquired real estate leases and other intangibles, net | ||||||||
Assets held for sale | ||||||||
Cash and cash equivalents | ||||||||
Restricted cash | ||||||||
Due from related persons | ||||||||
Other assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Revolving credit facility | $ | $ | ||||||
Term loan, net | ||||||||
Senior unsecured notes, net | ||||||||
Security deposits | ||||||||
Accounts payable and other liabilities | ||||||||
Due to related persons | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,597,589 and 164,563,034 shares issued and outstanding, respectively | ||||||||
Additional paid in capital | ||||||||
Cumulative net income available for common shareholders | ||||||||
Cumulative common distributions | ( | ) | ( | ) | ||||
Total shareholders’ equity | ||||||||
Total liabilities and shareholders’ equity | $ | $ | ||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Hotel operating revenues | $ | $ | $ | $ | ||||||||||||
Rental income | ||||||||||||||||
FF&E reserve income | ||||||||||||||||
Total revenues | ||||||||||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | ||||||||||||||||
Other operating expenses | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | ||||||||||||||||
Loss on asset impairment | ||||||||||||||||
Total expenses | ||||||||||||||||
Gain (loss) on sale of real estate | ( | ) | ( | ) | ||||||||||||
Gain on insurance settlement | ||||||||||||||||
Dividend income | ||||||||||||||||
Unrealized gains (losses) on equity securities, net | ( | ) | ( | ) | ( | ) | ||||||||||
Interest income | ||||||||||||||||
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $3,486, $2,570, $6,774 and $5,140, respectively) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss on early extinguishment of debt | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes and equity in earnings (losses) of an investee | ( | ) | ( | ) | ||||||||||||
Income tax (expense) benefit | ( | ) | ( | ) | ( | ) | ||||||||||
Equity in earnings (losses) of an investee | ( | ) | ( | ) | ||||||||||||
Net income (loss) | ( | ) | ( | ) | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Equity interest in investee’s unrealized gains (losses) | ||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Weighted average common shares outstanding (basic) | ||||||||||||||||
Weighted average common shares outstanding (diluted) | ||||||||||||||||
Net income (loss) per common share (basic and diluted) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Common Shares | Additional Paid in Capital | Cumulative Net Income Available for Common Shareholders | Cumulative Other Comprehensive Income (Loss) | |||||||||||||||||||||||
Number of Shares | Common Shares | Cumulative Common Distributions | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||
Common share grants | — | — | — | — | ||||||||||||||||||||||
Common share repurchases | ( | ) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Distributions | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||
Balance at March 31, 2020 | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||
Common share grants | — | — | — | — | ||||||||||||||||||||||
Common share repurchases and forfeitures | ( | ) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Distributions | — | — | — | — | — | — | ||||||||||||||||||||
Balance at June 30, 2020 | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2018 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||||||||
Equity interest in investee’s unrealized gains | — | — | — | — | — | |||||||||||||||||||||
Common share grants | — | — | — | — | — | |||||||||||||||||||||
Distributions | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||
Balance at March 31, 2019 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||||||||
Equity interest in investee’s unrealized gains | — | — | — | — | — | |||||||||||||||||||||
Common share grants | — | — | — | |||||||||||||||||||||||
Common share repurchases | ( | ) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Distributions | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||
Balance at June 30, 2019 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||
For the Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | ( | ) | $ | ||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Amortization of debt issuance costs and debt discounts and premiums as interest | ||||||||
Straight-line rental income | ||||||||
Security deposits utilized | ( | ) | ( | ) | ||||
Loss on early extinguishment of debt | ||||||||
Loss on asset impairment | ||||||||
Unrealized (gains) and losses on equity securities, net | ||||||||
Equity in (earnings) losses of an investee | ( | ) | ||||||
(Gain) loss on sale of real estate | ( | ) | ||||||
Gain on insurance settlement | ( | ) | ||||||
Deferred income taxes | ||||||||
Other non-cash (income) expense, net | ( | ) | ( | ) | ||||
Changes in assets and liabilities: | ||||||||
Due from related persons | ||||||||
Other assets | ( | ) | ( | ) | ||||
Accounts payable and other liabilities | ( | ) | ||||||
Due to related persons | ( | ) | ( | ) | ||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities: | ||||||||
Real estate acquisitions and deposits | ( | ) | ( | ) | ||||
Real estate improvements | ( | ) | ( | ) | ||||
Hotel managers’ purchases with restricted cash | ( | ) | ( | ) | ||||
Hotel manager’s deposit (withdrawal) of insurance proceeds into restricted cash | ( | ) | ||||||
Net proceeds from sale of real estate | ||||||||
Investment in Sonesta | ( | ) | ||||||
Distributions in excess of earnings from Affiliates Insurance Company | ||||||||
Net cash (used in) provided by investing activities | ( | ) | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of senior unsecured notes, after discounts and premiums | ||||||||
Repurchase of senior unsecured notes | ( | ) | ||||||
Borrowings under unsecured revolving credit facility | ||||||||
Repayments of unsecured revolving credit facility | ( | ) | ( | ) | ||||
Deferred financing costs | ( | ) | ||||||
Repurchase of common shares | ( | ) | ||||||
Distributions to common shareholders | ( | ) | ( | ) | ||||
Net cash used in financing activities | ( | ) | ( | ) | ||||
Decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
Cash and cash equivalents and restricted cash at beginning of period | ||||||||
Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
Supplemental disclosure of cash and cash equivalents and restricted cash: | ||||||||
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Total cash and cash equivalents and restricted cash | $ | $ | ||||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for income taxes | ||||||||
Non-cash investing activities: | ||||||||
Investment in Sonesta | $ | $ | ||||||
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
(in thousands) | ||||||||||||
Weighted average common shares for basic earnings per share | ||||||||||||
Effect of dilutive securities: Unvested share awards | ||||||||||||
Weighted average common shares for diluted earnings per share | ||||||||||||
Acquisition Date | Location | Purchase Price | Land | Building and Improvements | Furniture, Fixtures and Equipment | Intangible Assets / Liabilities, net | ||||||||||||||||
3/12/2020 | Various (1) | $ | $ | $ | $ | $ | ||||||||||||||||
(1) | On March 12, 2020, we acquired |
Date of Sale | Number of Properties | Location | Tenant | Square Feet | Gross Sales Price | ||||||||
1/28/2020 | Gothenburg, NE | Vacant | $ | ||||||||||
2/6/2020 | Rochester, MN | Vacant | |||||||||||
2/13/2020 | Ainsworth, NE | Vacant | |||||||||||
2/14/2020 | Dekalb, IL | Vacant | |||||||||||
3/2/2020 | Eau Claire, MI | HOM Furniture, Inc.(1) | |||||||||||
3/28/2020 | Stillwater, OK | Vacant | |||||||||||
5/26/2020 | Pawtucket, RI | Vacant | |||||||||||
5/28/2020 | Canton, MA | Destination XL Group, Inc. (2) | |||||||||||
5/28/2020 | Phoenix, AZ | Vacant | |||||||||||
6/25/2020 | Bellefontaine, OH | Vacant | |||||||||||
$ | |||||||||||||
(1) | The HOM Furniture, Inc. lease was scheduled to expire on April 30, 2020 and required annual minimum rent of $ |
(2) | The Destination XL Group, Inc. lease was scheduled to expire on January 31, 2026 and required an annual minimum rent of $ |
• | We and Sonesta agreed to sell, rebrand or repurpose our |
• | Sonesta continues to manage |
• | Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) |
• | We and Sonesta modified our then existing Sonesta agreement and pooling agreement so that |
• | We and Sonesta modified our then existing Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our |
• | We and Sonesta extended the initial expiration date of the then existing management agreements for our full-service hotels managed by Sonesta located in Chicago, IL and Irvine, CA to January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta. |
• | we are required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $ |
• | our interest rate premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points; |
• | our ability to pay distributions on our common shares has been limited to amounts required to maintain our qualification for taxation as a real estate investment trust, or REIT, and to avoid the payment of certain income and excise taxes, and to pay a cash dividend of $ |
• | we are subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases); and |
• | we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic-related government stimulus programs to the repayment of outstanding loans under the credit agreement. |
For the Three Months Ended June 30, 2020 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Revenues: | ||||||||||||||||
Hotel operating revenues | $ | $ | $ | $ | ||||||||||||
Rental income | ||||||||||||||||
FF&E reserve income | ||||||||||||||||
Total revenues | ||||||||||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | — | — | ||||||||||||||
Other operating expenses | — | |||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | — | |||||||||||||||
Loss on asset impairment | ||||||||||||||||
Total expenses | ||||||||||||||||
Loss on sale of real estate | ( | ) | ( | ) | ||||||||||||
Gain on insurance settlement | ||||||||||||||||
Unrealized gain on equity securities | ||||||||||||||||
Interest income | ||||||||||||||||
Interest expense | — | ( | ) | ( | ) | |||||||||||
Loss on early extinguishment of debt | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes and equity in earnings of an investee | ( | ) | ( | ) | ||||||||||||
Income tax expense | ( | ) | ( | ) | ||||||||||||
Equity in losses of an investee | ( | ) | ( | ) | ||||||||||||
Net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
For the Six Months Ended June 30, 2020 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Revenues: | ||||||||||||||||
Hotel operating revenues | $ | $ | $ | $ | ||||||||||||
Rental income | ||||||||||||||||
FF&E reserve income | ||||||||||||||||
Total revenues | ||||||||||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | ||||||||||||||||
Other operating expenses | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | ||||||||||||||||
Loss on asset impairment | ||||||||||||||||
Total expenses | ||||||||||||||||
Loss on sale of real estate | ( | ) | ( | ) | ||||||||||||
Gain on insurance settlement | ||||||||||||||||
Unrealized losses on equity securities | ( | ) | ( | ) | ||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ||||||||||||
Loss on early extinguishment of debt | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes and equity in earnings of an investee | ( | ) | ( | ) | ||||||||||||
Income tax expense | ( | ) | ( | ) | ||||||||||||
Equity in losses of an investee | ( | ) | ( | ) | ||||||||||||
Net income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
As of June 30, 2020 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Total assets | $ | $ | $ | $ | ||||||||||||
For the Three Months Ended June 30, 2019 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Revenues: | ||||||||||||||||
Hotel operating revenues | $ | $ | $ | $ | ||||||||||||
Rental income | ||||||||||||||||
FF&E reserve income | ||||||||||||||||
Total revenues | ||||||||||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | ||||||||||||||||
Other operating expenses | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | ||||||||||||||||
Total expenses | ||||||||||||||||
Dividend income | ||||||||||||||||
Unrealized loss on equity securities | ( | ) | ( | ) | ||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes and equity in earnings of an investee | ( | ) | ||||||||||||||
Income tax benefit | ||||||||||||||||
Equity in earnings of an investee | ||||||||||||||||
Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
For the Six Months Ended June 30, 2019 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Revenues: | ||||||||||||||||
Hotel operating revenues | $ | $ | $ | $ | ||||||||||||
Rental income | ||||||||||||||||
FF&E reserve income | ||||||||||||||||
Total revenues | ||||||||||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | ||||||||||||||||
Other operating expenses | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | — | |||||||||||||||
Total expenses | ||||||||||||||||
Gain on sale of real estate | ||||||||||||||||
Dividend income | ||||||||||||||||
Unrealized loss on equity securities | ( | ) | ( | ) | ||||||||||||
Interest income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes and equity in earnings of an investee | ( | ) | ||||||||||||||
Income tax expense | ( | ) | ( | ) | ||||||||||||
Equity in earnings of an investee | ||||||||||||||||
Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
As of December 31, 2019 | ||||||||||||||||
Hotels | Net Lease | Corporate | Consolidated | |||||||||||||
Total assets | $ | $ | $ | $ | ||||||||||||
Fair Value at Reporting Date Using | ||||||||||||||||
Carrying Value at | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
Description | June 30, 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Recurring Fair Value Measurement Assets: | ||||||||||||||||
Investment in TA (1) | $ | $ | $ | $ | ||||||||||||
Non-recurring Fair Value Measurement Assets: | ||||||||||||||||
Assets of properties held for sale (2) | $ | $ | $ | $ | ||||||||||||
(1) | Our |
(2) | As of June 30, 2020, we owned |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Carrying Value (1) | Fair Value | Carrying Value (1) | Fair Value | |||||||||||||
Senior Unsecured Notes, due 2021 at 4.25% | $ | $ | $ | $ | ||||||||||||
Senior Unsecured Notes, due 2022 at 5.00% | ||||||||||||||||
Senior Unsecured Notes, due 2023 at 4.50% | ||||||||||||||||
Senior Unsecured Notes, due 2024 at 4.65% | ||||||||||||||||
Senior Unsecured Notes, due 2024 at 4.35% | ||||||||||||||||
Senior Unsecured Notes, due 2025 at 4.50% | ||||||||||||||||
Senior Unsecured Notes, due 2025 at 7.50% | ||||||||||||||||
Senior Unsecured Notes, due 2026 at 5.25% | ||||||||||||||||
Senior Unsecured Notes, due 2026 at 4.75% | ||||||||||||||||
Senior Unsecured Notes, due 2027 at 4.95% | ||||||||||||||||
Senior Unsecured Notes, due 2028 at 3.95% | ||||||||||||||||
Senior Unsecured Notes, due 2029 at 4.95% | ||||||||||||||||
Senior Unsecured Notes, due 2030 at 4.375% | ||||||||||||||||
Total financial liabilities | $ | $ | $ | $ | ||||||||||||
(1) | Carrying value includes unamortized discounts and premiums and issuance costs. |
• | our operators and tenants and their ability to withstand the current economic conditions and continue to pay us returns and rents; |
• | actively communicating with our operators and tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and |
• | monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our operators and tenants to enable us and them to operate through the current economic conditions and enhance our operators’ and tenants’ ability to pay us returns and rents. |
• | $967,911 of availability under our revolving credit facility and we have received a limited waiver of compliance with certain financial covenants under our credit agreement to ensure we have full access to undrawn amounts under such credit facility, subject to minimum liquidity requirements, |
• | reduced our quarterly cash distributions on our common shares to $0.01 per share; a savings of $87,220 per quarter compared to prior distribution levels, |
• | raised $788,002 of net proceeds from the issuance of our 7.5% senior notes due 2025, |
• | repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021, |
• | raised $62,858 in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $55,625, |
• | no debt maturities during the remainder of 2020 and the next debt maturity being $50,000 of our senior notes due in February 2021, and |
• | prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations. |
• | the duration and severity of the negative economic impact; |
• | the strength and sustainability of any economic recovery; |
• | the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and |
• | whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience “second waves” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events. |
For the Three Months Ended June 30, | |||||||||||||||
Increase | % Increase | ||||||||||||||
2020 | 2019 | (Decrease) | (Decrease) | ||||||||||||
Revenues: | |||||||||||||||
Hotel operating revenues | $ | 117,356 | $ | 541,215 | $ | (423,859 | ) | (78.3 | )% | ||||||
Rental income - hotels | 1,992 | 5,074 | (3,082 | ) | (60.7 | )% | |||||||||
Rental income - net lease portfolio | 95,592 | 63,143 | 32,449 | 51.4 | % | ||||||||||
Total rental income | 97,584 | 68,217 | 29,367 | 43.0 | % | ||||||||||
FF&E reserve income | — | 1,130 | (1,130 | ) | (100.0 | )% | |||||||||
Expenses: | |||||||||||||||
Hotel operating expenses | 46,957 | 380,431 | (333,474 | ) | (87.7 | )% | |||||||||
Other operating expenses | 3,565 | 1,272 | 2,293 | 180.3 | % | ||||||||||
Depreciation and amortization - hotels | 67,898 | 66,900 | 998 | 1.5 | % | ||||||||||
Depreciation and amortization - net lease portfolio | 59,529 | 32,296 | 27,233 | 84.3 | % | ||||||||||
Total depreciation and amortization | 127,427 | 99,196 | 28,231 | 28.5 | % | ||||||||||
General and administrative | 11,302 | 12,207 | (905 | ) | (7.4 | )% | |||||||||
Loss on asset impairment | 28,514 | — | 28,514 | n/m | |||||||||||
Other operating income: | |||||||||||||||
Loss on sale of real estate | (2,853 | ) | — | (2,853 | ) | n/m | |||||||||
Gain on insurance settlement | 62,386 | — | 62,386 | n/m | |||||||||||
Dividend income | — | 876 | (876 | ) | (100.0 | )% | |||||||||
Unrealized gains (losses) on equity securities, net | 3,848 | (60,788 | ) | 64,636 | (106.3 | )% | |||||||||
Interest income | 15 | 449 | (434 | ) | (96.7 | )% | |||||||||
Interest expense | (72,072 | ) | (49,601 | ) | (22,471 | ) | 45.3 | % | |||||||
Loss on early extinguishment of debt | (6,970 | ) | — | (6,970 | ) | n/m | |||||||||
Income (loss) before income taxes and equity earnings of an investee | (18,471 | ) | 8,392 | (26,863 | ) | (320.1 | )% | ||||||||
Income tax benefit (expense) | (16,660 | ) | 260 | (16,920 | ) | (6,507.7 | )% | ||||||||
Equity in earnings (losses) of an investee | (2,218 | ) | 130 | (2,348 | ) | (1,806.2 | )% | ||||||||
Net income (loss) | $ | (37,349 | ) | $ | 8,782 | $ | (46,131 | ) | (525.3 | )% | |||||
Weighted average shares outstanding (basic) | 164,382 | 164,284 | 98 | 0.1 | % | ||||||||||
Weighted average shares outstanding (diluted) | 164,382 | 164,326 | 56 | n/m | |||||||||||
Net income (loss) per common share (basic and diluted) | $ | (0.23 | ) | $ | 0.05 | $ | (0.28 | ) | (560.0 | )% | |||||
For the Six Months Ended June 30, | |||||||||||||||
Increase | % Increase | ||||||||||||||
2020 | 2019 | (Decrease) | (Decrease) | ||||||||||||
Revenues: | |||||||||||||||
Hotel operating revenues | $ | 500,859 | $ | 996,078 | $ | (495,219 | ) | (49.7 | )% | ||||||
Rental income - hotels | 2,372 | 10,148 | (7,776 | ) | (76.6 | )% | |||||||||
Rental income - net lease portfolio | 195,284 | 126,742 | 68,542 | 54.1 | % | ||||||||||
Total rental income | 197,656 | 136,890 | 60,766 | 44.4 | % | ||||||||||
FF&E reserve income | 201 | 2,502 | (2,301 | ) | (92.0 | )% | |||||||||
Expenses: | |||||||||||||||
Hotel operating expenses | 318,105 | 698,116 | (380,011 | ) | (54.4 | )% | |||||||||
Other operating expenses | 7,324 | 2,712 | 4,612 | 170.1 | % | ||||||||||
Depreciation and amortization - hotels | 135,438 | 133,365 | 2,073 | 1.6 | % | ||||||||||
Depreciation and amortization - net lease portfolio | 119,915 | 65,196 | 54,719 | 83.9 | % | ||||||||||
Total depreciation and amortization | 255,353 | 198,561 | 56,792 | 28.6 | % | ||||||||||
General and administrative | 25,326 | 24,442 | 884 | 3.6 | % | ||||||||||
Loss on asset impairment | 45,254 | — | 45,254 | n/m | |||||||||||
Gain (loss) on sale of real estate | (9,764 | ) | 159,535 | (169,299 | ) | (106.1 | )% | ||||||||
Gain on insurance settlement | 62,386 | — | 62,386 | n/m | |||||||||||
Dividend income | — | 1,752 | (1,752 | ) | (100.0 | )% | |||||||||
Unrealized gains (losses) on equity securities, net | (1,197 | ) | (39,811 | ) | 38,614 | (97.0 | )% | ||||||||
Interest income | 277 | 1,086 | (809 | ) | (74.5 | )% | |||||||||
Interest expense | (143,147 | ) | (99,367 | ) | (43,780 | ) | 44.1 | % | |||||||
Loss on early extinguishment of debt | (6,970 | ) | — | (6,970 | ) | n/m | |||||||||
Income before income taxes and equity earnings of an investee | (51,061 | ) | 234,834 | (285,895 | ) | (121.7 | )% | ||||||||
Income tax expense | (17,002 | ) | (799 | ) | (16,203 | ) | 2,027.9 | % | |||||||
Equity in earnings (losses) of an investee | (2,936 | ) | 534 | (3,470 | ) | (649.8 | )% | ||||||||
Net income (loss) | $ | (70,999 | ) | $ | 234,569 | $ | (305,568 | ) | (130.3 | )% | |||||
Weighted average shares outstanding (basic) | 164,376 | 164,281 | 95 | 0.1 | % | ||||||||||
Weighted average shares outstanding (diluted) | 164,376 | 164,324 | 52 | n/m | |||||||||||
Net income (loss) per common share (basic and diluted) | $ | (0.43 | ) | $ | 1.43 | $ | (1.86 | ) | (130.1 | )% | |||||
• | we amended and restated our then existing Sonesta agreement, and our existing pooling agreement with Sonesta, which combines our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us, as further described below; |
• | we and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay hotels currently managed by Sonesta, which as of June 30, 2020, had an aggregate carrying value of $461,263 and which currently require aggregate minimum returns of $48,239. As the hotels are sold, rebranded or repurposed, the management agreement for the applicable hotel(s) will terminate without our being required to pay Sonesta a termination fee and the annual minimum returns due to us under our Sonesta agreement will decrease by the amount allocated to the applicable hotel(s); |
• | Sonesta continues to manage 14 of our full-service hotels it then managed and the aggregate annual minimum returns due for these hotels was reduced from $99,013 to $69,013; |
• | Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta; |
• | we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that up to 5% of the gross revenues of each of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as FF&E reserves, subject to available cash flow after payment of the annual minimum returns due to us and working capital advances, if any, under our Sonesta agreement; |
• | we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause”, casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed; and |
• | we and Sonesta extended the initial expiration date of the then existing management agreements for our full-service hotels located in Chicago, IL and Irvine, CA that are managed by Sonesta to expire in January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta. |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash and cash equivalents and restricted cash at the beginning of the period | $ | 81,259 | $ | 76,003 | ||||
Net cash provided by (used in): | ||||||||
Operating activities | 48,797 | 239,898 | ||||||
Investing activities | (74,760 | ) | 531 | |||||
Financing activities | (5,438 | ) | (262,952 | ) | ||||
Cash and cash equivalents and restricted cash at the end of the period | $ | 49,858 | $ | 53,480 | ||||
• | During the six months ended June 30, 2020, we funded $28,900 for capital improvements to certain hotels under the Marriott agreement using cash on hand and borrowings under our revolving credit facility. Under the Marriott agreement, we have previously agreed to fund capital improvements of approximately $400,000 at certain hotels over a four-year period. We and Marriott have agreed to defer certain capital improvement projects previously scheduled for 2020 based on current market conditions. Also, we and Marriott agreed to suspend contributions to the FF&E reserve under the Marriott agreement through the end of 2020 effective March 1, 2020 as a result of current market conditions. We currently expect to fund $20,000 for capital improvements under this agreement during the last six months of 2020 using cash on hand or borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase. |
• | We funded $3,900 for capital improvements to hotels under the IHG agreement during the six months ended June 30, 2020. We currently do not expect to fund any capital improvements during the last six months of 2020. Effective March 1, 2020, we and IHG agreed to suspend contributions to the FF&E reserve under the IHG agreement for the remainder of 2020 as a result of current market conditions. |
• | Under our Sonesta agreement, FF&E deposits are required only if there are excess cash flows after our payment of minimum returns and reimbursement of owner or manager advances, if any. During the six months ended June 30, 2020, we funded $40,088 for capital improvements to certain hotels included in our Sonesta agreement using cash on hand and borrowings under our revolving credit facility. We currently expect to fund $11,000 of capital improvements during the last six months of 2020 under this agreement using cash on hand or borrowings under our revolving credit facility. As we fund these improvements, the contractual minimum returns payable to us increase. |
• | We did not fund any capital improvements under our Hyatt agreement during the six months ended June 30, 2020. We currently do not expect to fund any capital improvements under this agreement during the last six months of 2020. |
• | We did not fund any capital improvements under our Radisson agreement during the six months ended June 30, 2020. We currently do not expect to fund any capital improvements under this agreement during the last six months of 2020. Also, effective April 1, 2020, we and Radisson agreed to suspend contributions to the FF&E reserve under our Radisson agreement through the remainder of 2020 as a result of market conditions. |
• | No FF&E escrow deposits are required under our Wyndham agreement. We are required to reimburse Wyndham for capital improvements to hotels in our Wyndham agreement. During the six months ended June 30, 2020, we reimbursed $1,212 of capital improvements to certain hotels included in our Wyndham agreement using cash on hand. We currently expect to fund $800 of capital improvements under this agreement for the last six months of 2020 using cash on hand and borrowings under our revolving credit facility. |
• | we are required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000; |
• | our interest premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points; |
• | our ability to pay distributions on our common shares has been limited to amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes, and to pay a cash dividend of $.01 per common share per quarter; |
• | we are subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases); and |
• | we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic related government stimulus programs to the repayment of outstanding loans under the credit agreement. |
Year | Maturity | |||
2020 | $ | — | ||
2021 | 50,000 | |||
2022 | 500,000 | |||
2023 | 500,000 | |||
2024 | 1,175,000 | |||
2025 | 1,150,000 | |||
2026 | 800,000 | |||
2027 | 400,000 | |||
2028 | 400,000 | |||
2029 | 425,000 | |||
2030 | 400,000 | |||
$ | 5,800,000 | |||
As of June 30, 2020 | As of December 31, 2019 | |||||||
Real estate properties, net(1) | $ | 7,064,672 | $ | 7,334,472 | ||||
Intercompany balances(2) | 537,020 | 612,632 | ||||||
Other assets, net | 798,992 | 674,705 | ||||||
Total assets | $ | 8,400,684 | $ | 8,621,809 | ||||
Indebtedness, net | $ | 5,732,018 | $ | 5,287,658 | ||||
Other liabilities | 785,194 | 1,226,777 | ||||||
Total liabilities | $ | 6,517,212 | $ | 6,514,435 | ||||
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | |||||||
Revenues | $ | 655,631 | $ | 2,296,465 | ||||
Expenses | 791,778 | 2,008,539 | ||||||
Net income (loss) | (136,147 | ) | 287,926 | |||||
(1) | Real estate properties, net as of June 30, 2020 and December 31, 2019, includes $222,512 and $249,620, respectively, of properties owned directly by us and not included in the assets of the subsidiary guarantors. |
(2) | Intercompany balances represent receivables from non-guarantor subsidiaries. |
Operating Agreement Reference Name | Number of Properties | Number of Rooms or Suites (Hotels) | Investment (1) | Annual Minimum Return/Rent (2) | Rent / Return Coverage (3) | |||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
IHG (4)(5) | 103 | 17,154 | $ | 2,381,721 | $ | 216,551 | (0.11x) | 1.09x | 0.50x | 0.97x | ||||||||||||
Marriott (4)(6) | 122 | 17,085 | 1,869,817 | 192,891 | (0.32x) | 1.29x | 0.52x | 1.10x | ||||||||||||||
Sonesta (4)(7) | 53 | 9,588 | 2,004,204 | 119,779 | (0.59x) | 0.89x | 0.04x | 0.64x | ||||||||||||||
Hyatt (8) | 22 | 2,724 | 301,942 | 22,037 | (0.36x) | 1.20x | 0.37x | 0.95x | ||||||||||||||
Radisson (4)(9) | 9 | 1,939 | 289,139 | 20,442 | (0.80x) | 1.13x | 0.36x | 0.93x | ||||||||||||||
Wyndham (4)(10) | 20 | 2,914 | 214,917 | 18,914 | (0.61x) | 0.74x | 0.04x | 0.50x | ||||||||||||||
Total / Average Hotels | 329 | 51,404 | $ | 7,061,740 | $ | 590,614 | (0.33x) | 1.11x | 0.38x | 0.91x | ||||||||||||
(1) | Represents the historical cost of our hotel properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from FF&E reserves funded from hotel operations which do not result in increases in hotel minimum returns or rents. |
(2) | Each of our hotel management agreements or leases provides for payment to us of an annual minimum return or rent, respectively. Certain of these minimum payment amounts are secured by full or limited guarantees or security deposits as more fully described below. In addition, certain of our hotel management agreements provide for payment to us of additional amounts to the extent of available cash flows as defined in the management agreement. Payments of these additional amounts are not guaranteed or secured by deposits. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments necessary to record rent on a straight-line basis. |
(3) | We define hotel coverage as combined total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to hotel minimum returns or rents due to us (which data is provided to us by our hotel managers or tenant), divided by the hotel minimum returns or rents due to us. Coverage amounts for the IHG agreement include data for periods prior to our ownership of certain hotel properties. Coverage amounts for our Sonesta agreement include data for two hotels prior to when they were managed by Sonesta. |
(4) | During the three months ended June 30, 2020, ten Sonesta hotels, four IHG hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic. |
(5) | We lease 102 IHG branded hotels (20 Staybridge Suites®, 61 Candlewood Suites®, two InterContinental®, 11 Crowne Plaza®, three Holiday Inn® and five Kimpton® Hotels & Restaurants) in 30 states in the U.S., the District of Columbia and Ontario, Canada to one of our wholly owned taxable REIT subsidiaries, or TRSs. These 102 hotels are managed by subsidiaries of IHG under a combination management agreement. We lease one additional InterContinental® branded hotel in Puerto Rico to a subsidiary of IHG. The annual minimum return amount presented in the table above includes $7,908 of minimum rent related to the leased Puerto Rico hotel. The management agreement and the lease expire in 2036; IHG has two renewal options for 15 years each for all, but not less than all, of the hotels. |
(6) | We lease our 122 Marriott branded hotels (two full service Marriott®, 35 Residence Inn by Marriott®, 71 Courtyard by Marriott®, 12 TownePlace Suites by Marriott® and two SpringHill Suites by Marriott® hotels) in 31 states to certain of our TRSs. The hotels under the Marriott agreement are managed by subsidiaries of Marriott and require aggregate annual minimum returns of $192,891. The Marriott agreement is scheduled to expire in 2035 and Marriott has two renewal options for 10 years each for all, but not less than all, of the hotels. |
(7) | We lease our 53 Sonesta branded hotels (seven Royal Sonesta® Hotels, seven Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states to certain of our TRSs. The hotels are managed by Sonesta under a combination management agreement which expires in 2037; Sonesta has two renewal options for 15 years each for all, but not less than all, of these 53 hotels. |
(8) | We lease our 22 Hyatt Place® branded hotels in 14 states to one of our TRSs. The hotels are managed by a subsidiary of Hyatt, under a combination management agreement that expires in 2030. Hyatt has two renewal options for 15 years each for all, but not less than all, of the hotels. |
(9) | We lease our nine Radisson branded hotels (four Radisson® Hotels & Resorts, four Country Inns & Suites® by Radisson and one Radisson Blu® hotel) in six states to one of our TRSs and these hotels are managed by a subsidiary of Radisson under a combination management agreement which expires in 2035 and Radisson has two 15-year renewal options for all, but not less than all, of the hotels. |
(10) | We lease our 20 Wyndham branded hotels (four Wyndham Hotels and Resorts® and 16 Hawthorn Suites® hotels) in 13 states to one of our TRSs. The hotels are managed by a subsidiary of Wyndham under a combination management agreement which expires in September 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold. We have no guarantee or security deposit from Wyndham. Payment by Wyndham is limited to the available cash flows after payment of operating expenses. Wyndham is not entitled to any base management fees for the remainder of the agreement. |
No. of Hotels | No. of Rooms / Suites | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||||||
ADR | ||||||||||||||||||||||||||||
IHG (1) (2) | 103 | 17,154 | $ | 76.44 | $ | 125.17 | (38.9 | %) | 99.80 | 124.01 | (19.5 | %) | ||||||||||||||||
Marriott (1) | 122 | 17,085 | 103.97 | 139.22 | (25.3 | %) | 128.86 | 139.68 | (7.7 | %) | ||||||||||||||||||
Sonesta (1) (2) (3) | 53 | 9,588 | 87.14 | 155.21 | (43.9 | %) | 118.44 | 150.98 | (21.6 | %) | ||||||||||||||||||
Hyatt | 22 | 2,724 | 81.62 | 110.52 | (26.1 | %) | 98.82 | 111.68 | (11.5 | %) | ||||||||||||||||||
Radisson (1) (2) | 9 | 1,939 | 95.37 | 137.14 | (30.5 | %) | 119.91 | 133.74 | (10.3 | %) | ||||||||||||||||||
Wyndham (1) | 20 | 2,914 | 61.32 | 83.44 | (26.5 | %) | 71.27 | 83.10 | (14.2 | %) | ||||||||||||||||||
All Hotels Total / Average | 329 | 51,404 | $ | 84.34 | $ | 132.55 | (36.4 | %) | $ | 110.24 | $ | 131.39 | (16.1 | %) | ||||||||||||||
OCCUPANCY | ||||||||||||||||||||||||||||
IHG (1) (2) | 103 | 17,154 | 38.2 | % | 80.8 | % | (42.6)Pts | 50.3 | % | 76.6 | % | (26.3)Pts | ||||||||||||||||
Marriott (1) | 122 | 17,085 | 19.5 | % | 76.1 | % | (56.6)Pts | 36.2 | % | 70.8 | % | (34.6)Pts | ||||||||||||||||
Sonesta (1) (2) (3) | 53 | 9,588 | 25.9 | % | 73.8 | % | (47.9)Pts | 38.3 | % | 68.4 | % | (30.1)Pts | ||||||||||||||||
Hyatt | 22 | 2,724 | 28.1 | % | 82.8 | % | (54.7)Pts | 43.8 | % | 78.7 | % | (34.9)Pts | ||||||||||||||||
Radisson (1) (2) | 9 | 1,939 | 12.4 | % | 75.2 | % | (62.8)Pts | 33.1 | % | 69.3 | % | (36.2)Pts | ||||||||||||||||
Wyndham (1) | 20 | 2,914 | 31.4 | % | 70.5 | % | (39.1)Pts | 42.1 | % | 65.5 | % | (23.4)Pts | ||||||||||||||||
All Hotels Total / Average | 329 | 51,404 | 27.8 | % | 77.2 | % | (49.4)Pts | 41.9 | % | 72.3 | % | (30.4)Pts | ||||||||||||||||
RevPAR | ||||||||||||||||||||||||||||
IHG (1) (2) | 103 | 17,154 | $ | 29.20 | $ | 101.14 | (71.1 | %) | 50.20 | 94.99 | (47.2 | %) | ||||||||||||||||
Marriott (1) | 122 | 17,085 | 20.27 | 105.95 | (80.9 | %) | 46.65 | 98.89 | (52.8 | %) | ||||||||||||||||||
Sonesta (1) (2) (3) | 53 | 9,588 | 22.57 | 114.54 | (80.3 | %) | 45.36 | 103.27 | (56.1 | %) | ||||||||||||||||||
Hyatt | 22 | 2,724 | 22.94 | 91.51 | (74.9 | %) | 43.28 | 87.89 | (50.8 | %) | ||||||||||||||||||
Radisson (1) (2) | 9 | 1,939 | 11.83 | 103.13 | (88.5 | %) | 39.69 | 92.68 | (57.2 | %) | ||||||||||||||||||
Wyndham (1) | 20 | 2,914 | 19.25 | 58.83 | (67.3 | %) | 30.00 | 54.43 | (44.9 | %) | ||||||||||||||||||
All Hotels Total / Average | 329 | 51,404 | $ | 23.45 | $ | 102.33 | (77.1 | %) | $ | 46.19 | $ | 94.99 | (51.4 | %) | ||||||||||||||
(1) | During the three months ended June 30, 2020, ten Sonesta hotels, four IHG hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic. |
(2) | Operating data includes data for certain hotels for periods prior to when we acquired them. |
(3) | Operating data includes data for two hotels for periods prior to when these were managed by Sonesta. |
Brand | No. of Buildings | Investment (1) (3) | Percent of Total Investment | Annualized Minimum Rent (2) (3) | Percent of Total Annualized Minimum Rent (2) (3) | Coverage (4) | ||||||||||||||
1. | TravelCenters of America | 134 | $ | 2,281,589 | 43.8 | % | $ | 168,011 | 45.5 | % | 1.95x | |||||||||
2. | Petro Stopping Centers | 45 | 1,021,226 | 19.6 | % | 78,099 | 21.1 | % | 1.55x | |||||||||||
3. | AMC Theatres | 13 | 121,701 | 2.3 | % | 9,412 | 2.5 | % | 0.99x | |||||||||||
4. | The Great Escape | 14 | 98,242 | 1.9 | % | 7,140 | 1.9 | % | 4.13x | |||||||||||
5. | Life Time Fitness | 3 | 92,617 | 1.8 | % | 5,246 | 1.4 | % | 2.99x | |||||||||||
6. | Buehler's Fresh Foods | 5 | 76,536 | 1.5 | % | 5,143 | 1.4 | % | 4.33x | |||||||||||
7. | Heartland Dental | 59 | 61,120 | 1.2 | % | 4,493 | 1.2 | % | 2.07x | |||||||||||
8. | Pizza Hut | 61 | 61,108 | 1.2 | % | 4,271 | 1.2 | % | 1.26x | |||||||||||
9. | Regal Cinemas | 6 | 44,476 | 0.9 | % | 3,658 | 1.0 | % | 0.89x | |||||||||||
10. | Express Oil Change | 23 | 49,724 | 1.0 | % | 3,379 | 0.9 | % | 3.50x | |||||||||||
11. | Other (5) | 446 | 1,298,723 | 24.8 | % | 80,571 | 21.9 | % | 3.01 | x | ||||||||||
Total | 809 | $ | 5,207,062 | 100.0 | % | $ | 369,423 | 100.0 | % | 2.16x | ||||||||||
(1) | Represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any. |
(2) | Each of our leases provides for payment to us of minimum rent. Certain of these minimum payment amounts are secured by full or limited guarantees. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis, or any reimbursement of expenses paid by us. |
(3) | As of June 30, 2020, we have nine net lease properties with a carrying value of $8,248 and annual minimum rent of $789 classified as held for sale. |
(4) | See page 36 for our definition of coverage. |
(5) | Other includes 119 distinct brands with an average investment of $10,914 and average annual minimum rent of $677. |
Tenant | Brand Affiliation | No. of Buildings | Investment (1) (2) | Percent of Total Investment | Annualized Minimum Rent (2) (3) | Percent of Total Annualized Minimum Rent | Coverage (4) | |||||||||||||||
1. | TravelCenters of America | TravelCenters and Petro | 179 | $ | 3,302,815 | 63.4 | % | $ | 246,110 | 66.6 | % | 1.83x | (5) (6) | |||||||||
2. | Universal Pool Co., Inc. | The Great Escape | 14 | 98,242 | 1.9 | % | 7,140 | 1.9 | % | 4.13x | ||||||||||||
3. | Healthy Way of Life II, LLC | Life Time Fitness | 3 | 92,617 | 1.8 | % | 5,246 | 1.4 | % | 2.99x | (5) | |||||||||||
4. | Styx Acquisition, LLC | Buehler's Fresh Foods | 5 | 76,536 | 1.5 | % | 5,143 | 1.4 | % | 4.33x | (5) | |||||||||||
5. | Professional Resource Development, Inc. | Heartland Dental | 59 | 61,120 | 1.2 | % | 4,493 | 1.2 | % | 2.07x | ||||||||||||
6. | Regal Cinemas, Inc. | Regal Cinemas | 6 | 44,476 | 0.9 | % | 3,658 | 1.0 | % | 0.89x | ||||||||||||
7. | Eastwynn Theatres, Inc. | AMC Theatres | 5 | 41,771 | 0.8 | % | 3,541 | 1.0 | % | 0.57x | ||||||||||||
8. | Express Oil Change, LLC | Express Oil Change | 23 | 49,724 | 1.0 | % | 3,379 | 0.9 | % | 3.50x | ||||||||||||
9. | Pilot Travel Centers LLC | Flying J Travel Plaza | 3 | 41,681 | 0.8 | % | 3,151 | 0.9 | % | 3.46x | ||||||||||||
10. | B&B Movie Theatres, LLC | B&B Theatres | 4 | 34,369 | 0.7 | % | 3,100 | 0.8 | % | 0.85x | ||||||||||||
Subtotal, top 10 | 301 | 3,843,351 | 74.0 | % | 284,961 | 77.1 | % | 1.96x | ||||||||||||||
11. | Other (7) | Various | 508 | 1,345,747 | 26.0 | % | 84,462 | 22.9 | % | 2.84x | ||||||||||||
Total | 809 | $ | 5,189,098 | 100.0 | % | $ | 369,423 | 100.0 | % | 2.16x | ||||||||||||
(1) | Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any. |
(2) | Each of our leases provides for payment to us of minimum rent. Certain of these minimum payment amounts are secured by full or limited guarantees. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis, or any reimbursement of expenses paid by us. |
(3) | As of June 30, 2020, we have nine net lease properties with an aggregate carrying value of $8,248 and annual minimum rent of $789 classified as held for sale. |
(4) | See page 36 for our definition of coverage. |
(5) | Leases subject to full or partial corporate guarantee. |
(6) | TA is our largest tenant. We lease 179 travel centers (134 under the TravelCenters of America brand and 45 under the Petro Stopping Centers brand) to a subsidiary of TA under master leases that expire in 2029, 2031, 2032, 2033 and 2035, respectively. TA has two renewal options for 15 years each for all of the travel centers. In addition to the payment of our minimum rent, the TA leases provide for payment to us of percentage rent based on increases in total non-fuel revenues over base levels (3% of non-fuel revenues above 2015 non-fuel revenues). These leases provide for payment of an additional half percent (0.5%) of non-fuel revenues above 2019 non-fuel base revenues. TA's remaining deferred rent obligation of $48,440 is being paid in quarterly installments of $4,404 through January 31, 2023. |
(7) | Other includes 170 tenants with an average investment of $7,916 and average annual minimum rent of $497. |
Industry | No. of Buildings | Investment (1) (2) | Percent of Total Investment | Annualized Minimum Rent (2) (3) | Percent of Total Annualized Minimum Rent | Coverage (4) | ||||||||||||
Travel Centers | 182 | $ | 3,344,496 | 64.2% | $ | 249,261 | 67.5 | % | 1.85x | |||||||||
Restaurants-Quick Service | 250 | 319,543 | 6.1% | 21,106 | 5.7 | % | 2.27x | |||||||||||
Movie Theaters | 24 | 209,846 | 4.0% | 16,770 | 4.5 | % | 0.95x | |||||||||||
Restaurants-Casual Dining | 61 | 216,346 | 4.1% | 11,076 | 3.0 | % | 1.68x | |||||||||||
Health and Fitness | 13 | 184,744 | 3.5% | 9,398 | 2.5 | % | 2.57x | |||||||||||
Miscellaneous Retail | 19 | 114,433 | 2.2% | 7,140 | 2.0 | % | 4.13x | |||||||||||
Medical/Dental Office | 71 | 118,098 | 2.3% | 9,172 | 2.5 | % | 2.63x | |||||||||||
Grocery | 19 | 129,219 | 2.5% | 8,599 | 2.3 | % | 4.32x | |||||||||||
Automotive Parts and Service | 63 | 96,496 | 1.9% | 6,557 | 1.8 | % | 3.01x | |||||||||||
Apparel | 1 | 11,027 | 0.2% | 670 | 0.2 | % | -6.53x | |||||||||||
Automotive Dealers | 9 | 68,756 | 1.3% | 4,985 | 1.3 | % | 4.73x | |||||||||||
Entertainment | 4 | 61,436 | 1.2% | 1,782 | 0.5 | % | 2.15x | |||||||||||
Educational Services | 9 | 55,647 | 1.1% | 4,127 | 1.1 | % | 2.59x | |||||||||||
Sporting Goods | 3 | 52,022 | 1.0% | 3,489 | 0.9 | % | 3.34x | |||||||||||
Miscellaneous Manufacturing | 6 | 31,824 | 0.6% | 2,294 | 0.6 | % | 16.02x | |||||||||||
Building Materials | 27 | 30,036 | 0.6% | 2,510 | 0.7 | % | 3.89x | |||||||||||
Car Washes | 5 | 28,658 | 0.6% | 2,076 | 0.6 | % | 4.60x | |||||||||||
Drug Stores and Pharmacies | 8 | 23,970 | 0.5% | 1,647 | 0.4 | % | 1.46x | |||||||||||
Legal Services | 5 | 11,362 | 0.2% | 1,009 | 0.3 | % | 2.08x | |||||||||||
General Merchandise | 3 | 7,492 | 0.1% | 555 | 0.2 | % | 1.81x | |||||||||||
Home Furnishings | 5 | 37,215 | 0.7% | 2,854 | 0.8 | % | 0.80x | |||||||||||
Dollar Stores | 3 | 2,971 | 0.1% | 187 | 0.1 | % | 3.15x | |||||||||||
Other | 4 | 28,748 | 0.6% | 2,159 | 0.5 | % | 4.33x | |||||||||||
Vacant | 15 | 22,677 | 0.4% | — | — | % | — | |||||||||||
Total | 809 | $ | 5,207,062 | 100.0% | $ | 369,423 | 100.0 | % | 2.16x | |||||||||
(1) | Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any. |
(2) | As of June 30, 2020, we have nine net lease properties with an aggregate carrying value of $8,248 and annual minimum rent of $789 classified as held for sale. |
(3) | Each of our leases provides for payment to us of minimum rent, respectively. Certain of these minimum payment amounts are secured by full or limited guarantees. Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis, or any reimbursement of expenses paid by us. |
(4) | See page 36 for our definition of coverage. |
Year(1) | Square Feet | Annualized Minimum Rent Expiring (2) | Percent of Total Annualized Minimum Rent Expiring | Cumulative % of Total Minimum Rent Expiring | |||||||
2020 | 166,158 | $ | 2,555 | 0.7% | 0.7% | ||||||
2021 | 555,447 | 5,852 | 1.6% | 2.3% | |||||||
2022 | 853,374 | 10,824 | 2.9% | 5.2% | |||||||
2023 | 150,293 | 2,512 | 0.7% | 5.9% | |||||||
2024 | 688,836 | 10,018 | 2.7% | 8.6% | |||||||
2025 | 438,433 | 8,426 | 2.3% | 10.9% | |||||||
2026 | 868,969 | 9,808 | 2.7% | 13.6% | |||||||
2027 | 1,198,874 | 15,539 | 4.2% | 17.8% | |||||||
2028 | 512,639 | 7,430 | 2.0% | 19.8% | |||||||
2029 | 1,311,612 | 47,322 | 12.8% | 32.6% | |||||||
2030 | 184,368 | 3,908 | 1.1% | 33.7% | |||||||
2031 | 1,397,033 | 49,723 | 13.4% | 47.1% | |||||||
2032 | 1,125,517 | 50,438 | 13.6% | 60.7% | |||||||
2033 | 1,100,723 | 53,194 | 14.4% | 75.1% | |||||||
2034 | 134,640 | 4,504 | 1.2% | 76.3% | |||||||
2035 | 2,316,553 | 80,764 | 21.9% | 98.2% | |||||||
2036 | 320,792 | 3,537 | 1.0% | 99.2% | |||||||
2037 | — | — | 0.0% | 99.2% | |||||||
2038 | 10,183 | 416 | 0.1% | 99.3% | |||||||
2039 | 185,437 | 2,501 | 0.7% | 100.0% | |||||||
2040 | 1,739 | 152 | 0.0% | 100.0% | |||||||
Total | 13,521,620 | $ | 369,423 | 100% | |||||||
(1) | The year of lease expiration is pursuant to contract terms. |
(2) | As of June 30, 2020, we have nine net lease properties with an annual minimum rent of $789 classified as held for sale. |
State | Square Feet | Annualized Minimum Rent | Percent of Total Annualized Minimum Rent | ||||||
Texas | 1,205,393 | $ | 31,985 | 8.7% | |||||
Illinois | 1,019,885 | 26,147 | 7.1% | ||||||
Ohio | 1,307,589 | 26,033 | 7.0% | ||||||
California | 399,045 | 20,981 | 5.7% | ||||||
Indiana | 637,239 | 18,034 | 4.9% | ||||||
Pennsylvania | 642,533 | 17,821 | 4.8% | ||||||
Arizona | 476,651 | 16,977 | 4.6% | ||||||
Georgia | 597,248 | 16,872 | 4.6% | ||||||
Florida | 538,130 | 15,852 | 4.3% | ||||||
New Mexico | 246,478 | 11,012 | 3.0% | ||||||
Other | 6,658,702 | 167,709 | 45.3% | ||||||
13,728,893 | $ | 369,423 | 100.0% | ||||||
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||
Net income (loss) | $ | (37,349 | ) | $ | 8,782 | $ | (70,999 | ) | $ | 234,569 | |||||||
Add (Less): | Depreciation and amortization expense | 127,427 | 99,196 | 255,353 | 198,561 | ||||||||||||
(Gain) loss on sale of real estate (1) | 2,853 | — | 9,764 | (159,535 | ) | ||||||||||||
Loss on asset impairment (2) | 28,514 | — | 45,254 | — | |||||||||||||
Unrealized (gains) and losses on equity securities, net (3) | (3,848 | ) | 60,788 | 1,197 | 39,811 | ||||||||||||
Adjustments to reflect the entity's share of FFO attributable to an investee (4) | 327 | — | 439 | — | |||||||||||||
FFO | 117,924 | 168,766 | 241,008 | 313,406 | |||||||||||||
Add (less): | Loss on early extinguishment of debt (5) | 6,970 | — | 6,970 | — | ||||||||||||
Gain on insurance settlement, net of tax (6) | (46,736 | ) | — | (46,736 | ) | — | |||||||||||
Normalized FFO | $ | 78,158 | $ | 168,766 | $ | 201,242 | $ | 313,406 | |||||||||
Weighted average shares outstanding (basic) | 164,382 | 164,284 | 164,376 | 164,281 | |||||||||||||
Weighted average shares outstanding (diluted) (7) | 164,382 | 164,326 | 164,376 | 164,324 | |||||||||||||
Basic and diluted per common share amounts: | |||||||||||||||||
Net income (loss) | $ | (0.23 | ) | $ | 0.05 | $ | (0.43 | ) | $ | 1.43 | |||||||
FFO | $ | 0.72 | $ | 1.03 | $ | 1.47 | $ | 1.91 | |||||||||
Normalized FFO | $ | 0.48 | $ | 1.03 | $ | 1.22 | $ | 1.91 | |||||||||
Distributions declared per share | $ | 0.01 | $ | 0.54 | $ | 0.55 | $ | 1.07 | |||||||||
(1) | We recorded a $2,853 net loss on sale of real estate during the three months ended June 30, 2020 in connection with the sales of four net lease properties, a $9,764 net loss on sale of real estate during the six months ended June 30, 2020 in connection with the sales of six net lease properties and a $159,535 gain on sale of real estate during the three months ended March 31, 2019 in connection with the sales of 20 travel centers. |
(2) | We recorded a $28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and four net lease properties to their estimated fair value and a $45,254 loss on asset impairment during the six months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and six net lease properties to their estimated fair value. |
(3) | Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our former investment in RMR Inc. and our investment in TA common shares to their fair values as of the end of the period. We sold our shares of RMR Inc. on July 1, 2019. |
(4) | Represents adjustments to reflect our proportionate share of FFO related to our equity investment in Sonesta. |
(5) | We recorded a $6,970 loss on early extinguishment of debt during the three and six months ended June 30, 2020 related to our repurchase of $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 for an aggregate purchase price of $355,971, excluding accrued interest. |
(6) | We recorded a $62,386 gain on insurance settlement during the three months ended June 30, 2020 for insurance proceeds received for its leased hotel in San Juan, PR related to Hurricane Maria. Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds. We also recorded a $15,650 deferred tax liability as a result of the book to tax difference related to this accounting in the three months ended June 30, 2020. |
(7) | Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards. |
Principal Balance | Annual Interest Rate | Annual Interest Expense | Maturity | Interest Payments Due | |||||||||
$ | 50,000 | 4.250 | % | $ | 2,125 | 2021 | Semi-Annually | ||||||
500,000 | 5.000 | % | 25,000 | 2022 | Semi-Annually | ||||||||
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 | ||||||||
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 | ||||||||
$ | 5,800,000 | $ | 291,426 | ||||||||||
Impact of Increase in Interest Rates | |||||||||||||||
Interest Rate Per Year (1) | Outstanding Debt | Total Interest Expense Per Year | Annual Per Share Impact (2) | ||||||||||||
At June 30, 2020 | 2.39 | % | $ | 433,127 | $ | 10,352 | $ | 0.06 | |||||||
One percentage point increase | 3.39 | % | $ | 433,127 | $ | 14,683 | $ | 0.09 | |||||||
Impact of Increase in Interest Rates | |||||||||||||||
Interest Rate Per Year (1) | Outstanding Debt | Total Interest Expense Per Year | Annual Per Share Impact (2) | ||||||||||||
At June 30, 2020 | 2.12 | % | $ | 1,400,000 | $ | 29,680 | $ | 0.18 | |||||||
One percentage point increase | 3.12 | % | $ | 1,400,000 | $ | 43,680 | $ | 0.27 | |||||||
(1) | Weighted average based on the interest rates and the respective outstanding borrowings (assuming fully drawn) as of June 30, 2020. |
(2) | Based on diluted weighted average common shares outstanding for the six months ended June 30, 2020. |
• | The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our operators and tenants, |
• | The implications of IHG’s payment defaults and the actions we may take if IHG does not cure these defaults or if we do not reach agreement with IHG, |
• | Our expectations about our ability and the ability of our operators and tenants to operate throughout the COVID-19 pandemic and withstand the resulting economic downturn, |
• | The likelihood and extent to which our operators and tenants will be negatively impacted by the COVID-19 pandemic and its aftermath and their abilities and willingness to pay the contractual amounts of returns, rents or other obligations due to us, |
• | Our ability to maintain sufficient liquidity during the duration of the COVID-19 pandemic and resulting economic downturn, |
• | Potential defaults on, or non-renewal of, leases by our tenants, |
• | Decreased rental rates or increased vacancies, |
• | Our sales and acquisitions of properties, |
• | Our policies and plans regarding investments, financings and dispositions, |
• | Our ability to pay interest on and principal of our debt, |
• | Our ability to pay distributions to our shareholders and to sustain the amount of such distributions, |
• | Our ability to raise or appropriately balance the use of debt or equity capital, |
• | Our intent to make improvements to certain of our properties and the success of our hotel renovations, |
• | Our ability to engage and retain qualified managers and tenants for our hotels and net lease properties on satisfactory terms, |
• | Our ability to diversify our sources of rents and returns that improve the security of our cash flows, |
• | The future availability of borrowings under our revolving credit facility, |
• | Our credit ratings, |
• | Our expectation that we benefit from our relationships with RMR LLC and Sonesta, |
• | Our qualification for taxation as a REIT, |
• | Changes in federal or state tax laws, and |
• | Other matters. |
• | The impact of conditions in the economy, including the COVID-19 pandemic and the resulting economic downturn, and the capital markets on us and our operators and tenants, |
• | Competition within the real estate, hotel, transportation and travel center and other industries in which our tenants operate, particularly in those markets in which our properties are located, |
• | Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters, |
• | Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes, |
• | Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control, and |
• | Actual and potential conflicts of interest with our related parties, including our Managing Trustees, TA, Sonesta, RMR LLC, and others affiliated with them. |
• | Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our future earnings, the capital costs we incur to acquire and maintain our properties and our working capital requirements. We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated, |
• | We fully utilized the security deposit we held from IHG and IHG has defaulted on its payments to us. There is no assurance IHG will cure these defaults or that we will successfully be able to negotiate modifications to our existing agreements on terms we are willing to accept. Further, if we do not come to an agreement with IHG, we expect to rebrand all 103 hotels under the IHG agreement and the terms of our arrangements with any successor operator may not be as favorable as our existing arrangement with IHG. Transitioning hotels to another operator is disruptive to their operations and requires significant capital investments, |
• | We fully utilized the security deposit we held and exhausted the $30.0 million limited guarantee to cover shortfalls in hotel cash flows available to pay the minimum returns due to us under the Marriott agreement. Under the Marriott agreement, if the security deposit and guaranty have been depleted, Marriott is required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination. There can be no assurance that Marriott will pay any shortfalls, |
• | We cannot be sure of the future financial performance of our properties and whether such performance will cover our minimum returns and rents, or regarding our managers’, tenants’ or guarantors’ future actions or their abilities or willingness to pay minimum returns and rents owed to us. If other operators do not honor their obligations, we may seek to terminate our arrangements with them or other actions to enforce our rights. |
• | We have no guarantees or security deposits under our Sonesta or Wyndham agreements. Accordingly, we may receive amounts from Sonesta that are less than the contractual minimum returns stated in the Sonesta agreement, or we may be requested to fund losses for our Sonesta or Wyndham hotels, |
• | Statements about improving trends experienced during the course of the 2020 second quarter in the level of requests for rent deferments or other relief and improving hotel occupancies may imply that the positive trend may continue. However, COVID-19 infections have recently increased in large parts of the United States and the U.S. economy is experiencing continued challenges. These positive trends could reverse and further deteriorate as a result. |
• | We have recently renovated certain hotels and are currently renovating additional hotels. Operating results at our hotels may decline as a result of having rooms out of service or other disruptions during renovations. Also, while our funding of these capital projects will cause our contractual minimum returns to increase, the hotels’ operating results may not increase or may not increase to the extent that the minimum returns increase. Accordingly, coverage of our minimum returns at these hotels may remain depressed for an extended period, |
• | If general economic activity in the country declines, the operating results of certain of our properties may decline, the financial results of our managers and our tenants may suffer and these managers and tenants may be unable to pay our returns or rents. Also, depressed operating results from our properties for extended periods may result in the operators of some or all of our properties becoming unable or unwilling to meet their obligations or their guarantees and security deposits we hold may be exhausted, |
• | Hotel and other competitive forms of temporary lodging supply (for example, Airbnb) have been increasing and may affect our hotel operators’ ability to grow ADR and occupancy, and ADR and occupancy could decline due to increased competition which may cause our hotel operators to become unable to pay our returns or rents, |
• | If the current level of commercial activity in the country declines including as a result of the current economic downturn in response to the COVID-19 pandemic, if the price of diesel fuel increases significantly, if fuel conservation measures are increased, if freight business is directed away from trucking, if TA is unable to effectively compete or operate its business, if fuel efficiencies, the use of alternative fuels or transportation technologies reduce the demand for products and services TA sells or for various other reasons, TA may become unable to pay current and deferred rents due to us, |
• | Cash flows generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Our tenants’ failures to successfully operate their businesses could materially and adversely affect us, |
• | Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties that generate returns or can be leased for rents which exceed our operating and capital costs. We may be unable to identify properties that we want to acquire and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, any properties we may acquire may not generate returns or rents which exceed our operating and capital costs, |
• | We believe that our portfolio agreements include diverse groups of properties. Our portfolio agreements may not increase the security of our cash flows or increase the likelihood our agreements will be renewed as we expect, |
• | We were in the process of marketing certain hotel assets for sale in order to reduce our leverage. Current market conditions have forced us to suspend efforts to sell these properties. We may not complete the sales of any additional hotel assets we plan to sell, and we may determine to sell fewer, additional or other assets than those we may target for sale. Also, we may sell assets at prices that are less than we expect and less than their carrying values and we may incur losses on these sales or with respect to these assets, or may not ultimately use any proceeds we may receive to reduce debt leverage, |
• | At June 30, 2020, we had $20,206 of cash and cash equivalents, $966,873 available under our $1,000,000 revolving credit facility and security deposits and guarantees covering some of our minimum returns and rents. These statements may imply that we have sufficient working capital and liquidity. Certain tenants have requested and we have granted certain rent relief and these requests could increase. In addition, our managers and tenants may not be able to fund minimum returns and rents due to us from operating our properties or from other resources. In the past and currently, certain of our tenants and managers have in fact not paid the minimum amounts due to us from their operations of our leased or managed properties. Also, certain of the security deposits and guarantees we have to cover any such shortfalls are limited in amount and duration, and any security deposits we apply for such shortfalls do not result in additional cash flows to us. Our properties require, and we have agreed to provide, significant funding for capital improvements, renovations and other matters. Accordingly, we may not have sufficient working capital or liquidity, |
• | We may be unable to repay our debt obligations when they become due, |
• | We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital, including due to the COVID-19 pandemic and the resulting economic downturn. If challenging market conditions, including due to the COVID-19 pandemic and the resulting economic downturn, last for a long period or worsen, our operators and tenants may experience liquidity constraints and as a result may be unable or unwilling to pay returns or rents to us and our ability to operate our business effectively may be challenged, |
• | Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions, which we may be unable to satisfy, despite the receipt of the limited waiver we received. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants, |
• | Actual costs under our revolving credit facility or other floating rate debt will be higher than LIBOR plus a premium because of fees and expenses associated with such debt, |
• | The maximum borrowing availability under our revolving credit facility and term loan may be increased to up to $2,300,000 on a combined basis; however, the feature pursuant to which such maximum borrowing availability may be increased may not be utilized during the Waiver Period, |
• | The premiums used to determine the interest rate payable on our revolving credit facility and term loan and the facility fee payable on our revolving credit facility are based on our credit ratings. Changes in our credit ratings may cause the interest and fees we pay to increase, |
• | We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions; however, the applicable conditions may not be met, |
• | The business and property management agreements between us and RMR LLC have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms, and |
• | We believe that our relationships with our related parties, including RMR LLC, RMR Inc., TA, Sonesta and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize. |
• | the current low market price of our common shares may continue for an indefinite period and could decline further; |
• | possible significant declines in the value of our properties; |
• | our inability to accurately or reliably value our portfolio; |
• | our inability to comply with financial covenants that could result in our defaulting under our debt agreements; |
• | our maintaining the current reduced rate of distributions on our common shares for an extended period of time or suspending our payment of distributions entirely; |
• | our failure to pay interest and principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility; |
• | our inability to access debt and equity capital on attractive terms, or at all; |
• | further downgrades of our credit ratings by nationally recognized credit rating agencies; |
• | increased risk of default or bankruptcy of our managers or tenants; |
• | increased risk of our managers or tenants being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern and to pay rent and returns to us; |
• | our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions and, as a result, our inability to reduce our leverage; |
• | our inability to make improvements to our properties due to a construction moratorium or decrease in available construction workers or construction activity, including required inspectors and governmental personnel for permitting and other requirements, and due to our need to maintain our liquidity; |
• | our managers’ and tenants’ inability to operate our businesses if the health of their respective management personnel and other employees is affected, particularly if a significant number of individuals are negatively impacted; and |
• | reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our managers and tenants and the demand for our hotels, travel centers and retail space. |
• | we have received a limited waiver of compliance with certain financial covenants under our credit agreement to ensure we have access to undrawn amounts under such credit facility, |
• | we reduced our quarterly cash distributions on our common shares to $0.01 per share, a savings of $87.2 million per quarter compared to prior distribution levels, |
• | we raised $788.0 million of proceeds from the issuance of 7.5% unsecured senior notes due 2025, |
• | we repurchased $350.0 million principal amount of our $400.0 million of 4.25% senior notes due 2021, |
• | we raised $62.9 million in net proceeds from asset sales and have entered agreements to sell additional properties for a sales price of $55.6 million, |
• | we have prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations, |
• | we have been in regular, frequent contact with our hotel managers to implement cost savings measures to minimize losses and preserve liquidity, including agreeing to the closures of certain hotels, the reduction of hotel operating staff and certain other measures, and |
• | we have communicated with many of our net lease retail tenants regarding their operation of our properties in the current challenging economic conditions, and we have provided deferrals of approximately $11.3 million of rent owed to us that are now required to be payable in installments beginning later this year. |
• | our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity; |
• | our making of distributions is subject to compliance with restrictions contained in our credit agreement, including being limited to amounts required to maintain our qualification for taxation as a REIT and $.01 per common share per quarter, and during the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders; and |
• | the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to our FFO and Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. |
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 | |||||||
April 2020 | — | $ | — | $ | — | $ | — | ||||
May 2020 | — | — | — | — | |||||||
June 2020 | 3,808 | 7.09 | — | — | |||||||
Total | 3,808 | $ | 7.09 | $ | — | $ | — | ||||
(1) | These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of a certain of former officer and employee of RMR LLC in connection with awards of our common shares and the vesting of those awards and prior awards of common shares to him. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. |
Exhibit Number | Description | ||
3.1 | |||
3.2 | |||
3.3 | |||
3.4 | |||
4.1 | |||
4.2 | |||
4.3 | |||
4.4 | |||
4.5 | |||
4.6 | |||
4.7 | |||
4.8 | |||
4.9 | |||
Exhibit Number | Description | ||
4.10 | |||
4.11 | |||
4.12 | |||
4.13 | |||
4.14 | |||
4.15 | |||
4.16 | |||
4.17 | |||
4.18 | |||
4.19 | |||
10.1 | |||
10.2 | |||
10.3 | |||
10.4 | |||
10.5 | |||
10.6 | |||
10.7 | |||
10.8 | |||
22.1 | |||
31.1 | |||
31.2 | |||
Exhibit Number | Description | ||
32.1 | |||
99.1 | |||
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. (Filed herewith.) | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||
SERVICE PROPERTIES TRUST | |
/s/ John G. Murray | |
John G. Murray | |
President and Chief Executive Officer | |
Dated: August 7, 2020 | |
/s/ Brian E. Donley | |
Brian E. Donley | |
Chief Financial Officer and Treasurer | |
(Principal Financial and Accounting Officer) | |
Dated: August 7, 2020 | |
Pledgor | Pledged Subsidiary | Certificate No. | No. of Shares / Units Owned | Percentage of Ownership |
Highway Ventures Borrower LLC | Highway Ventures Properties Trust | 3 | 1,000 | 100% |
Service Properties Trust | HPTWN Properties Trust | 2 | 100 | 100% |
Banner NewCo LLC | SVCN 3 LLC | 1 | N/A | 100% |
Service Properties Trust | HPT Suite Properties Trust | 2 | 1,000 | 100% |
Banner NewCo LLC | SVCN 4 LLC | 1 | N/A | 100% |
Highway Ventures Properties Trust | Highway Ventures Properties LLC | 1 | N/A | 100% |
Service Properties Trust | Banner NewCo LLC | 1 | N/A | 100% |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
Pledgor | Pledged Subsidiary | Certificate No. | No. of Shares / Units Owned | Percentage of Ownership |
Banner NewCo LLC | SVCN 2 LLC | 1 | N/A | 100% |
By: | /s/ Brian E. Donley |
By: | /s/ Brian E. Donley |
By: | /s/ Anand J. Jobanputra |
Pledgor | Pledged Subsidiary | Certificate No. | No. of Shares / Units Owned | Percentage of Ownership |
HPT TA Properties Trust | HPT TA Properties LLC | 1 | N/A | 100% |
Pledgor | Type of Entity | Jurisdiction | Organizational ID No. | Mailing Address of Chief Executive Office |
HPT TA Properties Trust | Real estate investment trust | Maryland | 20-8260357 | Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 |
cc: | Wells Fargo Bank, National Association |
HPT IHG PR, Inc. HPT State Street TRS LLC HPT TRS IHG-2, Inc. Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458 |
Re: | The SVC/IHG Portfolio Agreements set forth on Schedule 1 |
cc: | InterContinental Hotels Group Resources, Inc. |
1. | Lease Agreement, dated as of February 16, 2005, between HPT IHG PR, Inc., as landlord (“PR Landlord”), and Intercontinental Hotels (Puerto Rico) Inc., as tenant (“PR Tenant”), as amended (as so amended, the “PR Lease”). |
2. | Management Agreement, dated as of July 1, 2011, among HPT TRS IHG-2, Inc. (for itself and as successor by merger with HPT TRS IHG-1, Inc. and HPT TRS IHG-3, Inc.), as owner (“Owner”), and Intercontinental Hotels Group Resources, Inc., IHG Management (Maryland) LLC, and Intercontinental Hotels Group Canada, Inc., as manager (collectively, “Manager”), as amended (as amended, the “Master Management Agreement”). |
3. | Amended and Restated Management Agreement, dated as of February 1, 2017, between Owner, as owner, and KHRG Allegro, LLC, as manager (“Chicago Allegro Manager”) (the “Chicago Allegro Management Agreement”). |
4. | Amended and Restated Management Agreement, dated as of October 9, 2019, between HPT State Street TRS LLC, as owner (“Chicago Owner”), and Kimpton Hotel & Restaurant Group, LLC, and KHRG State Street, LLC, as manager (the “Chicago Palomar Manager”) (the “Chicago Palomar Management Agreement”). |
Exact Name of Guarantor Subsidiary | Jurisdiction |
Cambridge TRS, Inc. | Maryland |
Harbor Court Associates, LLC | Maryland |
Highway Ventures Borrower LLC | Delaware |
Highway Ventures LLC | Delaware |
Highway Ventures Properties Trust | Maryland |
HPT Cambridge LLC | Massachusetts |
HPT Clift TRS LLC | Maryland |
HPT CW MA Realty LLC | Maryland |
HPT CW MA Realty Trust | Massachusetts |
HPT CY TRS, Inc. | Maryland |
HPT Geary ABC Holdings LLC | Maryland |
HPT Geary Properties Trust | Maryland |
HPT IHG Chicago Property LLC | Maryland |
HPT IHG GA Properties LLC | Maryland |
HPT IHG-2 Properties Trust | Maryland |
HPT IHG-3 Properties LLC | Maryland |
HPT SN Holding, Inc. | New York |
HPT State Street TRS LLC | Maryland |
HPT Suite Properties Trust | Maryland |
HPT TA Properties Trust | Maryland |
HPT TRS IHG-2, Inc. | Maryland |
HPT TRS Inc. | Maryland |
HPT TRS MRP, Inc. | Maryland |
HPT TRS SPES II, Inc. | Maryland |
HPT TRS WYN, Inc. | Maryland |
HPT Wacker Drive TRS LLC | Maryland |
HPTCY Properties Trust | Maryland |
HPTMI Hawaii, Inc. | Delaware |
HPTMI Properties Trust | Maryland |
HPTWN Properties Trust | Maryland |
Royal Sonesta, Inc. | Louisiana |
SVC Holdings LLC | Maryland |
SVCN 1 LLC | Delaware |
SVCN 2 LLC | Delaware |
SVCN 5 LLC | Delaware |
1. | I have reviewed this Quarterly Report on Form 10-Q of Service Properties Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 7, 2020 | /s/ John G. Murray |
John G. Murray | |
Managing Trustee, President and Chief Executive Officer | |
1. | I have reviewed this Quarterly Report on Form 10-Q of Service Properties Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 7, 2020 | /s/ Brian E. Donley |
Brian E. Donley | |
Chief Financial Officer and Treasurer | |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ John G. Murray | /s/ Brian E. Donley | |
John G. Murray | Brian E. Donley | |
Managing Trustee, President and | Chief Financial Officer and Treasurer | |
Chief Executive Officer | ||
Date: August 7, 2020 | ||
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common shares, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common shares, shares authorized (in shares) | 200,000,000 | 200,000,000 |
| Common shares, shares issued (in shares) | 164,597,589 | 164,563,034 |
| Common shares, shares outstanding (in shares) | 164,597,589 | 164,563,034 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Income Statement [Abstract] | ||||
| Interest expense, amortization of debt issuance costs and debt discounts and premiums | $ 3,486 | $ 2,570 | $ 6,774 | $ 5,140 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Supplemental Information - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Supplemental disclosure of cash and cash equivalents and restricted cash: | ||
| Cash and cash equivalents | $ 20,206 | $ 15,688 |
| Restricted cash | 29,652 | 37,792 |
| Total cash and cash equivalents and restricted cash | 49,858 | 53,480 |
| Supplemental cash flow information: | ||
| Cash paid for interest | 142,122 | 94,296 |
| Cash paid for income taxes | 403 | 2,289 |
| Non-cash investing activities: | ||
| Investment in Sonesta | $ 42,000 | $ 0 |
Basis of Presentation |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation | Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Service Properties Trust and its subsidiaries, or SVC, we, our or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets. We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $110,984 and $31,920 as of June 30, 2020 and December 31, 2019, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $108,721 and $138,708 as of June 30, 2020 and December 31, 2019, respectively, and consist primarily of security deposits they hold and amounts payable to certain of our hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.
|
New Accounting Pronouncements |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Accounting Standards Update and Change in Accounting Principle [Abstract] | |
| New Accounting Pronouncements | Note 2. New Accounting Pronouncements On January 1, 2020, we adopted FASB Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Lease related receivables are governed by the lease accounting under GAAP and are not subject to ASU No. 2016-13. We adopted this standard using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.
|
Revenue Recognition |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Revenue from Contract with Customer [Abstract] | |
| Revenue Recognition | Note 3. Revenue Recognition We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income. We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided. We report rental income for leased properties in our condensed consolidated statements of comprehensive income. We recognize rental income from operating leases on a straight-line basis over the term of the lease agreements. We increased rental income by $875 for the three months ended June 30, 2020, reduced rental income by $3,190 for the three months ended June 30, 2019 and reduced rental income by $2,669 and $4,322 for the six months ended June 30, 2020 and 2019, respectively, to record scheduled rent changes under certain of our retail leases, the deferred rent obligations payable to us under our leases with TravelCenters of America Inc., or TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis. See Notes 6 and 10 for further information regarding our TA leases. Due from related persons includes $40,473 and $47,057 at June 30, 2020 and December 31, 2019, respectively, and other assets, net includes $7,765 and $4,054 of straight-line rent receivables at June 30, 2020 and December 31, 2019, respectively. Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements. We may determine percentage rent due to us under our leases monthly, quarterly or annually, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned. We had deferred estimated percentage rent of $124 and $849 for the three and six months ended June 30, 2020, respectively, and $958 and $2,027 for the three and six months ended June 30, 2019, respectively. We own all the escrowed reserves for future renovations or refurbishments, or FF&E reserve escrows, for our hotels. We report deposits by our third-party tenants into the escrow accounts as FF&E reserve income. We do not report FF&E reserves for our managed hotels as FF&E reserve income.
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Weighted Average Common Shares |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average Common Shares | Note 4. Weighted Average Common Shares The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
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Real Estate Properties |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Properties | Note 5. Real Estate Properties At June 30, 2020, we owned 329 hotels with 51,404 rooms or suites and 809 service-oriented retail properties with approximately 13.7 million square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term. Our properties had an aggregate undepreciated carrying value of $11,298,816, including $152,367 classified as held for sale as of June 30, 2020. During the six months ended June 30, 2020, we funded $78,500 for improvements to certain of our properties which, pursuant to the terms of our management and lease agreements with our managers and tenants, resulted in increases in our contractual annual minimum returns and rents of $5,657. As of June 30, 2020, we substantially completed a comprehensive rebuilding project of our San Juan, PR hotel as a result of damage sustained during Hurricane Maria in 2017. We recorded a $62,386 gain on insurance settlement during the three months ended June 30, 2020 for insurance proceeds received for this damage. Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds. See Note 6 for further information about our management and lease agreements and our fundings of improvements to certain of our properties. Acquisitions We acquired a portfolio of three net lease properties during the six months ended June 30, 2020. We accounted for this transaction as an acquisition of assets. Our allocation of the purchase price for this acquisition based on the estimated fair value of the acquired assets is presented in the table below.
Dispositions We sold ten net lease properties with an aggregate of 1,101,996 rentable square feet for aggregate proceeds of $63,960, excluding closing costs, in ten separate transactions during the six months ended June 30, 2020. The sales of these properties, as presented in the table below, do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of income. As a result of these sales, we recorded a net loss on sale of real estate of $2,853 and $9,764 during the three and six months ended June 30, 2020, respectively.
In July 2020, we sold one net lease property with 2,935 square feet with a carrying value of $657 requiring an annual minimum rent of $49 for a sale price of $700. We have entered into agreements to sell nine hotels with 1,178 rooms in five states with an aggregate carrying value of $38,321 for an aggregate sales price of $48,750. We currently expect the sales of these hotels to be completed in the fourth quarter of 2020. We have also entered into agreements to sell seven net lease properties with approximately 68,343 square feet in six states with an aggregate carrying value of $6,282 for an aggregate sales price of $6,875. The sales of these hotel and retail properties are subject to conditions, may not be completed, may be delayed or terms may change. We currently expect the sales of these net lease properties to be completed in the third quarter of 2020. As of June 30, 2020,we had 25 hotels with 3,333 rooms requiring aggregate annual minimum returns of $32,628 and an aggregate carrying value of $144,119 classified as held for sale and nine net lease properties with 103,408 square feet with leases requiring aggregate annual minimum rent of $789 and an aggregate carrying value of $8,248 classified as held for sale. See Note 13 for further information on these properties.
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Management Agreements and Leases |
6 Months Ended | ||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||
| Management Agreements and Leases | Note 6. Management Agreements and Leases As of June 30, 2020, we owned 329 hotels which were included in six operating agreements and 809 service orientated retail properties net leased to 180 tenants. We do not operate any of our properties. Hotel agreements As of June 30, 2020, 328 of our hotels were leased to our TRSs and managed by independent hotel operating companies and one hotel was leased to a third party. As of June 30, 2020, our hotel properties were managed by or leased to separate subsidiaries of InterContinental Hotels Group, plc, or IHG, Marriott International, Inc., or Marriott, Sonesta Holdco Corporation, or Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, and Wyndham Hotels & Resorts, Inc., or Wyndham, under six agreements. These hotel agreements have initial terms expiring between 2020 and 2037. Each of these agreements is for between nine and 122 of our hotels. In general, the agreements contain renewal options for all, but not less than all, of the affected properties included in each agreement, and the renewal terms range between 15 to 60 years. Most of these agreements require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents; (2) deposit a percentage of total hotel sales into FF&E reserves; and (3) for our managed hotels, make payments to our TRSs of additional returns to the extent of available cash flows after payment of operating expenses, funding of the FF&E reserves, payment of our minimum returns, payment of certain management fees, reimbursement of working capital advances and replenishment of security deposits or guarantees, as applicable. Some of our managers or tenants or their affiliates have provided deposits or guarantees to secure their obligations to pay us. IHG agreement. Our management agreement with IHG for 103 hotels, or the IHG agreement, provides that, as of June 30, 2020, we are to be paid annual minimum returns and rents of $216,551. We realized minimum returns and rents of $54,138 and $51,617 during the three months ended June 30, 2020 and 2019, respectively, and $108,223 and $101,201 during the six months ended June 30, 2020 and 2019, respectively, under this agreement. Pursuant to the IHG agreement, IHG has provided us with a security deposit to cover minimum payment shortfalls, if any. Under this agreement, IHG is required to maintain a minimum security deposit of $37,000 and this security deposit may be replenished and increased up to $100,000 from a share of future cash flows from the hotels in excess of our minimum returns and rents, working capital advances and certain management fees, if any. On June 1, 2020, we entered into a letter agreement with respect to certain matters related to the IHG agreement, including providing that IHG would not be required to maintain a minimum security deposit through December 31, 2021. During the six months ended June 30, 2020, we reduced the available security deposit by $66,725 to cover shortfalls in hotel cash flows available to pay the minimum returns and rents due to us for the period. The available balance of this security deposit was $8,992 as of June 30, 2020. In July 2020, we applied the remaining $8,992 of security deposit securing IHG’s obligations under the IHG agreement. We did not receive any payments from IHG to cure shortfalls for the balance of the July minimum returns and rents of $8,395 due to us after applying the remaining security deposit or the August 2020 minimum returns and rents of $18,045 due to us. In July 2020, we sent IHG a notice of default and termination, and in August 2020, we sent IHG an additional notice of default. We are in discussions with IHG to see if there may be a mutually beneficial resolution. Absent a cure of these defaults by IHG, or if no agreement is reached, we currently plan to transition management and branding of these 103 hotels to Sonesta. The IHG agreement requires 5% of gross revenues from hotel operations be placed in escrow for hotel maintenance and periodic renovations, or an FF&E reserve. Pursuant to the letter agreement with IHG described above, during the period from March 1, 2020 through September 30, 2020, IHG is not required to deposit any amounts into its FF&E reserve with respect to certain of our hotels that it manages. We funded $3,900 for capital improvements to certain of the hotels included in the IHG agreement during the six months ended June 30, 2020, which resulted in increases in our contractual annual minimum returns of $312. We did not fund any capital improvements for hotels included in the IHG agreement during the six months ended June 30, 2019. In April 2020, we funded $37,000 of working capital advances under the IHG agreement to cover projected operating losses at our hotels managed by IHG. Working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the IHG agreement. Marriott agreement. Our management agreement with Marriott for 122 hotels, or the Marriott agreement, provides that, as of June 30, 2020, we are to be paid annual minimum returns of $192,891. We realized minimum returns of $28,789 and $49,534 during the three months ended June 30, 2020 and 2019, respectively, and $76,437 and $94,768 during the six months ended June 30, 2020 and 2019, respectively, under this agreement. Pursuant to the Marriott agreement, Marriott had provided us with a security deposit to cover minimum return payment shortfalls, if any. Under this agreement, this security deposit, if utilized, may be replenished and increased up to $64,700 from 60% of the cash flows realized from operations of the 122 hotels after payment of the aggregate annual minimum returns, Marriott’s base management fees and working capital advances, if any. Marriott also provided us with a $30,000 limited guaranty to cover payment shortfalls up to 85% of our minimum returns after the available security deposit balance has been depleted. During the six months ended June 30, 2020, we fully utilized the remaining security deposit of $33,423 and exhausted the $30,000 limited guaranty to cover shortfalls in hotel cash flows available to pay the minimum returns due to us for the period. This limited guaranty expired when it was exhausted. We have the right to terminate the Marriott agreement after the security deposit and the guaranty have been depleted if Marriott fails to fund up to 80% of the minimum returns due to us. We funded $28,900 and $33,127 for capital improvements to certain of the hotels included in the Marriott agreement during the six months ended June 30, 2020 and 2019, respectively, which resulted in increases in our contractual annual minimum returns of $2,318 and $3,127, respectively. We and Marriott have identified 33 of the 122 hotels covered by the Marriott agreement that will be sold or rebranded, at which time we will retain the proceeds of any such sales and the aggregate annual minimum returns due to us would decrease by the amount allocated to the applicable hotel. As of June 30, 2020, 24 of these hotels with 2,989 rooms requiring annual minimum returns of $31,021 with an aggregate carrying value of $140,754 were classified as held for sale. During the three and six months ended June 30, 2020, we funded $30,000 of working capital advances under the Marriott agreement to cover projected operating losses at our hotels managed by Marriott. These working capital advances are reimbursable to us from shares of future cash flows from the hotel operations in excess of the minimum returns due to us and Marriott’s base management fees, if any, pursuant to the terms of the Marriott agreement. The Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under the Marriott agreement for the remainder of 2020. Sonesta agreement. As of June 30, 2020, Sonesta managed 14 of our full-service hotels and 39 of our extended stay hotels pursuant to management agreements for each of the hotels, which we refer to collectively as our Sonesta agreement, and a related pooling agreement, which combines those management agreements for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us. On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our existing business arrangements as follows:
Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement. We previously leased 48 vacation units to Wyndham Destinations, Inc. (NYSE: WYND), or Destinations, at our full service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham. Effective March 1, 2020, Sonesta commenced managing those units and those units were added to our Sonesta agreement for that Chicago hotel. Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, if gross revenues of the hotels, after payment of hotel operating expenses and management and related fees (other than Sonesta’s incentive fee, if applicable), are sufficient to do so. Our fixed annual minimum return under our Sonesta agreement was $119,779 as of June 30, 2020. Our Sonesta agreement further provides that we are paid an additional return based upon operating profits, as defined therein, after reimbursement of owner or manager advances, FF&E reserve escrows and Sonesta’s incentive fee, if applicable. Our Sonesta hotels generated a net operating cash flow deficit of $17,666 and returns of $28,005 during the three months ended June 30, 2020 and 2019, respectively, and a net operating cash flow deficit of $25,814 and returns of $42,165 during the six months ended June 30, 2020 and 2019, respectively, under our Sonesta agreement. We do not have any security deposits or guarantees for our Sonesta hotels. Accordingly, the returns we receive from our Sonesta hotels are limited to the hotels’ available cash flows, if any, after payment of operating expenses, including management and related fees. In addition to our minimum returns, the management agreement provides for payment of 80% of hotel cash flows after payment of hotel operating expenses including certain management fees to Sonesta, our minimum return, working capital advances and any FF&E reserves. During the three months ended June 30, 2020, we funded $7,351 of working capital advances under our Sonesta agreement to cover projected operating losses at our hotels managed by Sonesta. These working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Sonesta agreement. Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third-party reservation transmission fees of $2,147 and $10,180 for the three months ended June 30, 2020 and 2019, respectively, and $8,925 and $18,703 for the six months ended June 30, 2020 and 2019, respectively. In addition, we incurred procurement and construction supervision fees of $270 and $581 for the three months ended June 30, 2020 and 2019, respectively, and $902 and $986 for the six months ended June 30, 2020 and 2019, respectively, pursuant to our Sonesta agreement. These amounts are included in hotel operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements. Our Sonesta agreement does not require FF&E escrow deposits for our extended stay hotels managed by Sonesta and, prior to February 27, 2020, did not require FF&E escrow deposits for our full-service hotels managed by Sonesta, but does and did, as applicable, require us to fund capital expenditures that we approve or approved at our Sonesta hotels. No FF&E escrow deposits were required during the three and six months ended June 30, 2020. We funded $40,088 and $34,306 for renovations and other capital improvements to certain hotels included in our Sonesta agreement during the six months ended June 30, 2020 and 2019, respectively, which resulted in increases in our contractual annual minimum returns of $2,934 and $1,928, respectively. We owed Sonesta $7,154 and $15,537 for capital expenditure and other reimbursements at June 30, 2020 and December 31, 2019, respectively. Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets. Accounting for Investment in Sonesta: We account for our 34% non-controlling interest in Sonesta under the equity method of accounting. As of June 30, 2020, our investment in Sonesta had a carrying value of $44,378. This amount is included in other assets in our condensed consolidated balance sheets. The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total shareholders’ equity book value on the date of acquisition, February 27, 2020, by an aggregate of $8,000. As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition. We recorded amortization of the basis difference of $65 in both the three and six months ended June 30, 2020. We recognized losses of $2,218 and $2,936 related to our investment in Sonesta for the three and six months ended June 30, 2020, respectively. These amounts are included in equity in earnings (losses) of an investee in our condensed consolidated statements of comprehensive income. We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta. This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight-line basis through January 31, 2037, the remaining term of the Sonesta agreement as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income. We reduced hotel operating expenses by $621 and $828 for the three and six months ended June 30, 2020, respectively, for amortization of this liability. As of June 30, 2020, the unamortized balance of this liability was $41,172. See Note 10 for further information regarding our relationship, agreements and transactions with Sonesta. Hyatt agreement. Our management agreement with Hyatt for 22 hotels, or our Hyatt agreement, provides that, as of June 30, 2020, we are to be paid an annual minimum return of $22,037. We realized minimum returns of $5,509 during each of the three months ended June 30, 2020 and 2019 and minimum returns of $11,019 during each of the six months ended June 30, 2020 and 2019 under this agreement. Pursuant to our Hyatt agreement, Hyatt has provided us with a guaranty, which is limited to $50,000. During the six months ended June 30, 2020, the hotels under this agreement generated cash flows that were less than the minimum returns due to us for the period, and Hyatt made $11,094 of guaranty payments to cover the shortfall. The available balance of the guaranty was $8,561 as of June 30, 2020. In addition to our minimum returns, this management agreement provides for payment to us of 50% of the hotels’ available cash flows after payment of operating expenses, funding required FF&E reserves, payment of our minimum return, our working capital advances and reimbursement to Hyatt of working capital and guaranty advances. During the three months ended June 30, 2020, we funded $3,700 of working capital advances under our Hyatt agreement to cover projected operating losses at our hotels managed by Hyatt. Working capital advances are reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Hyatt agreement. Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve, subject to available cash flow. Radisson agreement. Our management agreement with Radisson for nine hotels, or our Radisson agreement, provides that, as of June 30, 2020, we are to be paid annual minimum returns of $20,442. We realized minimum returns of $5,111 and $5,015 during the three months ended June 30, 2020 and 2019, respectively, and minimum returns of $10,221 and $9,846 during the six months ended June 30, 2020 and 2019, respectively, under this agreement. Pursuant to our Radisson agreement, Radisson has provided us with a guaranty, which is limited to $47,523. During the six months ended June 30, 2020, the hotels under this agreement generated cash flows that were less than the minimum returns due to us for the period and Radisson made $13,789 of guaranty payments to cover the shortfall. The available balance of the guaranty was $27,426 as of June 30, 2020. In addition to our minimum returns, our Radisson agreement provides for payment to us of 50% of the hotels’ available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum returns, our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any. Our Radisson agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effective April 1, 2020, we and Radisson have agreed to suspend contributions to the FF&E reserve under our Radisson agreement for the remainder of 2020. Wyndham agreements. Our management agreement with Wyndham for 20 hotels, or our Wyndham agreement expires on September 30, 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold. Wyndham is required to pay us all cash flows of the hotels after payment of hotel operating costs. Wyndham is not entitled to any base management fees for the remainder of the agreement term. Our Wyndham hotels generated a net operating cash flow deficit of $2,667 and returns of $5,964 during the three months ended June 30, 2020 and 2019, respectively, and a net operating cash flow deficit of $3,748 and returns of $11,873 during the six months ended June 30, 2020 and 2019, respectively. We funded $1,212 and $2,278 for capital improvements at certain of the hotels included in our Wyndham agreement during the six months ended June 30, 2020 and 2019, respectively. In April 2020, we funded $2,423 of working capital advances under our Wyndham agreement to cover projected operating losses at our hotels managed by Wyndham. Net lease portfolio As of June 30, 2020, we owned 809 net lease service-oriented retail properties with 13.7 million square feet with leases requiring annual minimum rents of $369,423 with a weighted (by annual minimum rents) average remaining lease term of 11.11 years. The portfolio was 99% leased by 180 tenants operating under 129 brands in 22 distinct industries. TA leases TA is our largest tenant. As of June 30, 2020, we leased to TA a total of 179 travel centers under five leases that expire between 2029 and 2035 and require annual minimum rents of $246,110 which represent approximately 25.6% of our total annual minimum returns and rents as of June 30, 2020. In addition, TA is required to pay us previously deferred rent obligations in quarterly installments of $4,404 through January 31, 2023. TA paid $4,404 and $8,808 of deferred rent to us for the three and six months ended June 30, 2020, respectively. The remaining balance of previously deferred rents was $48,440 as of June 30, 2020. We recognized rental income from TA of $61,528 and $62,680 for the three months ended June 30, 2020 and 2019, respectively, and $123,055 and $125,756 for the six months ended June 30, 2020 and 2019, respectively. Rental income for the three months ended June 30, 2020 and 2019 includes $3,236 and $3,277 respectively, and for the six months ended June 30, 2020 and 2019, includes $6,584 and $4,491, respectively, of adjustments to record the deferred rent obligations under our TA leases and the estimated future payments to us by TA for the cost of removing underground storage tanks on a straight-line basis. As of June 30, 2020 and December 31, 2019, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $60,999 and $68,653, respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets. Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non-structural components. Under our TA leases, TA may request that we fund capital improvements in return for increases in TA’s annual minimum rent equal to 8.5% of the amounts funded. We did not fund any capital improvements to our properties that we leased to TA during the six months ended June 30, 2020 or 2019. In addition to the rental income that we recognized during the three months ended June 30, 2020 and 2019 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales. We determine percentage rent due under our TA leases annually and recognize any resulting amount as rental income when all contingencies are met. We had aggregate deferred percentage rent under our TA leases of $124 and $958 for the three months ended June 30, 2020 and 2019, respectively, and $849 and $2,027 for the six months ended June 30, 2020 and 2019, respectively. See Note 10 for further information regarding our relationship with TA. Other net lease agreements Our net lease agreements generally provide for minimum rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight-line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We recognized rental income from our 630 other net lease properties of $32,386 and $69,039 for the three and six months ended June 30, 2020, respectively, which include $4,099 and $5,800, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis. As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance. During the three months ended June 30, 2020, we collected 58.7% of rents from our other net lease tenants (45.6% in April 2020, 57.6% in May 2020 and 74.6% in June 2020). In July 2020, we collected 80.0% of rents due to us from our other net lease tenants. We have entered into rent deferral agreements with 80 net lease retail tenants with leases requiring an aggregate of $59,288 of annual minimum rents. These amounts do not include tenants that have withdrawn previously approved deferral requests. Generally these rent deferrals are for one to four months of rent and will be payable by the tenants over a 12 to 24 month period beginning in September 2020. We have deferred an aggregate of $11,312 of rent as of August 6, 2020. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease. Because the deferred rents referenced above will be repaid over a 12 to 24 month period, the cash flows from the respective leases are substantially the same as before the rent deferrals. We continually review receivables related to rent, straight-line rent and property operating expense reimbursements and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes an assessment of whether or not substantially all of the amounts due under a tenant’s lease are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income and do not record an allowance for uncollectible accounts. We recorded reserves for uncollectible amounts against rental income of $4,995 and $5,905 for the three and six months ended June 30, 2020, respectively. We had reserves for uncollectible rents of $11,835 and $5,981 as of June 30, 2020 and December 31, 2019, respectively, included in our condensed consolidated balance sheets. Guarantees and security deposits generally. When we reduce the amounts of the security deposits we hold for any of our operating agreements for payment deficiencies, it does not result in additional cash flows to us of the deficiency amounts, but reduces the refunds due to the respective tenants or managers that have provided us with these security deposits upon expiration of the applicable operating agreement. The security deposits are non-interest bearing and are not held in escrow. Under these agreements, any amount of the security deposits which are applied to payment deficits may be replenished from a share of future cash flows from the applicable hotel operations pursuant to the terms of the applicable agreements. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $196,107 and $4,853 less than the minimum returns due to us for the three months ended June 30, 2020 and 2019, respectively, and $314,171 and $37,085 less than the minimum returns due to us for the six months ended June 30, 2020 and 2019, respectively. When managers of these hotels are required to fund the shortfalls under the terms of our management agreements or their guarantees, we reflect such fundings (including security deposit applications) in our condensed consolidated statements of comprehensive income as a reduction of hotel operating expenses. We reduced hotel operating expenses by $121,155 for the three months ended June 30, 2020 and $191,660 and $16,679 for the six months ended June 30, 2020 and 2019, respectively. There was no reduction to hotel operating expense for the three months ended June 30, 2019. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our management agreements of $73,617 and $5,090 for the three months ended June 30, 2020 and 2019, respectively, and $121,373 and $23,797 for the three months ended June 30, 2020 and 2019, respectively, which represent the unguaranteed portions of our minimum returns from our Sonesta, Marriott and Wyndham agreements. Certain of our guarantees and our security deposits may be replenished by a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us pursuant to the terms of the respective agreements. When our guarantees and security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. We had $9,208 and $3,422 of guaranty and security deposit replenishments for the three and six months ended June 30, 2019, respectively. There were no guaranty or security deposit replenishments for the three or six months ended June 30, 2020 .
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Indebtedness |
6 Months Ended | ||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||
| Indebtedness | Note 7. Indebtedness Our principal debt obligations at June 30, 2020 were: (1) $33,127 of outstanding borrowings under our $1,000,000 revolving credit facility; (2) our $400,000 term loan; and (3) $5,800,000 aggregate outstanding principal amount of senior unsecured notes. Our revolving credit facility and our term loan are governed by a credit agreement with a syndicate of institutional lenders. Our $1,000,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of the facility for two additional six-month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 205 basis points per annum, subject to a LIBOR floor of 0.50%, as of June 30, 2020. We also pay a facility fee, which was 30 basis points per annum at June 30, 2020, on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of June 30, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 2.55%. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.00% and 2.30% for the three and six months ended June 30, 2020, respectively, and 3.40% for both the three and six months ended June 30, 2019. As of June 30, 2020, we had $33,127 outstanding and $966,873 available under our revolving credit facility. As of August 6, 2020, we had $32,089 outstanding and $967,911 available to borrow under our revolving credit facility, subject to the minimum liquidity requirements under our credit agreement described below. Our $400,000 term loan, which matures on July 15, 2023, is prepayable without penalty at any time. We are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 225 basis points per annum, subject to a LIBOR floor of 0.50%, as of June 30, 2020. The interest rate premium is subject to adjustment based on changes to our credit ratings. As of June 30, 2020, the annual interest rate for the amount outstanding under our term loan was 2.75%. The weighted average annual interest rate for borrowings under our term loan was 2.43% and 2.73% for the three and six months ended June 30, 2020, respectively, and 3.58% and 3.59% for the three and six months ended June 30, 2019, respectively. Our credit agreement also includes a feature under which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances. This feature may not be utilized during the Waiver Period (as defined below) and continuing until such time as we have demonstrated compliance with certain of our financial covenants as of June 30, 2021 pursuant to the terms of the amendment to the credit agreement governing our revolving credit facility and term loan described below. Our credit agreement and our unsecured senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager. Our credit agreement and our unsecured senior notes indentures and their supplements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. Our credit agreement also currently restricts our ability to make certain investments. We believe we were in compliance with the terms and conditions of our credit agreement, subject to the waiver described below, and our unsecured senior notes indentures and their supplements at June 30, 2020. On May 8, 2020, we amended the credit agreement governing our $1,000,000 revolving credit facility and $400,000 term loan. The amendment provides a waiver of certain of the financial covenants under our credit agreement through March 31, 2021, or the Waiver Period, during which, subject to certain conditions, we will continue to have access to undrawn amounts under the credit facility. During the Waiver Period, and continuing thereafter until such time as we have demonstrated compliance with certain of our financial covenants as of June 30, 2021:
We have pledged our equity in certain of our property owning subsidiaries to secure our obligations under the credit agreement. These subsidiaries owned properties with $876,715 of undepreciated book value as of June 30, 2020. We will be required to pledge the equity of additional property owning subsidiaries in the event that the ratio of the outstanding amount of the loans and other credit extensions under the credit agreement to the undepreciated book value of real property owned by the pledged subsidiaries, or the Collateral Value Percentage, exceeds 50%. These pledges are subject to release in full, (i) subject to the satisfaction of certain conditions, including, among other things, our having complied with the financial covenants under the credit agreement for two fiscal quarters following the end of the Waiver Period or (ii) in connection with our having issued at least $500,000 of unsecured notes with an initial term of five years, or a Qualified Note Issuance, provided that, among other conditions, the outstanding amount of the revolving facility does not exceed $750,000 and the term loan has been paid in full. If, following a release of pledges in connection with Qualified Note Issuance, a request for a borrowing under the revolving facility would result in more than $750,000 outstanding under the revolving facility, we are required to deliver new equity pledges such that the Collateral Value Percentage is no more than 50%. We have the right to substitute collateral and otherwise obtain the release of pledged subsidiaries in certain circumstances. While the equity pledges remain in effect, we will remain subject to the restrictions on our ability to make investments or pay distributions on our common shares that are described above. On June 17, 2020, we issued $800,000 principal amount of our 7.50% unsecured senior notes due 2025. The aggregate net proceeds from this offering was $788,002, after underwriting discounts and other offering expenses. These notes are fully and unconditionally guaranteed by certain of our subsidiaries. The subsidiaries in the guarantee pool may change from time to time as subsidiaries are allocated to or from the pledge pool for our credit agreement or for certain other reasons. Each subsidiary guarantor’s guarantee will automatically terminate and each subsidiary guarantor will automatically be released from all of its obligations under its guarantee and the indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investors Service, Inc., or Moody’s, or BBB (or the equivalent) by Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or Standard & Poor’s, or if Moody’s or Standard & Poor’s ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture governing the notes. On June 17, 2020, we repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 at a total cost of $355,971 excluding accrued interest pursuant to a cash tender offer. We recorded a loss of approximately $6,970, net of discount and deferred financing costs, on extinguishment of debt during the three months ended June 30, 2020. We funded this purchase using borrowings under our revolving credit facility.
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Shareholders' Equity |
6 Months Ended |
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Jun. 30, 2020 | |
| Stockholders' Equity Note [Abstract] | |
| Shareholders' Equity | Note 8. Shareholders' Equity Distributions On February 20, 2020, we paid a regular quarterly distribution to our common shareholders of record on January 27, 2020 of $0.54 per share, or $88,863. On May 21, 2020 we paid a regular quarterly distribution to common shareholders of record on April 21, 2020 of $0.01 per share, or $1,646. On July 16, 2020, we declared a regular quarterly distribution to common shareholders of record on July 27, 2020 of $0.01 per share, or $1,646. We expect to pay this amount on or about August 20, 2020. Share Awards On February 27, 2020, in accordance with our Trustee compensation arrangements, we awarded 3,000 of our common shares, valued at $18.64 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to each of our two new Trustees in connection with their election to our Board of Trustees. On June 10, 2020, in accordance with our Trustee compensation arrangements, we awarded 5,000 of our common shares, valued at $10.80 per common share, the closing price of our common shares on Nasdaq on that day to each of our seven Trustees as part of their annual compensation. Share Repurchases During the quarter ended March 31, 2020, we purchased an aggregate of 2,637 of our common shares valued at a weighted average price per common share of $16.36, based on the closing price of our common shares on Nasdaq, on the date of repurchase, from certain former employees of RMR LLC, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. During the quarter ended June 30, 2020, we purchased an aggregate of 3,808 of our common shares valued at a weighted average price per common share of $7.09, based on the closing price of our common shares on Nasdaq, on the date of repurchase, from a certain former officer and employee of RMR LLC, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
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Business and Property Management Agreements with RMR LLC |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Real Estate [Abstract] | |
| Business and Property Management Agreements with RMR LLC | Note 9. Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, excluding properties leased to TA, and the office building component of one of our hotels. Pursuant to our business management agreement, we recognized net business management fees of $8,411 and $9,661 for the three months ended June 30, 2020 and 2019, respectively, and $18,971 and $19,388 for the six months ended June 30, 2020 and 2019, respectively. Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2020 and 2019, no incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019. The actual amount of annual incentive fees for 2020, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2020, and will be payable in 2021. We did not incur an incentive fee payable to RMR LLC for the year ended December 31, 2019. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized property management and construction supervision fees of $921 and $27 for the three months ended June 30, 2020 and 2019, respectively, and $1,941 and $38 for the six months ended June 30, 2020 and 2019, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated statements of comprehensive income. We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC employees assigned to work exclusively or partly at our net lease properties (excluding properties leased to TA) and the office building component of one of our hotels, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, and as otherwise agreed. We reimbursed RMR LLC $139 and $142 for these expenses and costs for the three months ended June 30, 2020 and 2019, respectively, and $266 and $342 for the six months ended June 30, 2020 and 2019, respectively. We included these amounts in other operating expenses and selling, general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.
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Related Person Transactions |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Related Party Transactions [Abstract] | |
| Related Person Transactions | Note 10. Related Person Transactions We have relationships and historical and continuing transactions with TA, Sonesta, RMR LLC, The RMR Group Inc., or RMR Inc., and others affiliated with them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc. and is a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John G. Murray, our other Managing Trustee and President and Chief Executive Officer also serves as an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies. TA. TA is our largest tenant and property operator, leasing 26.6% of our gross carrying value of real estate properties as of June 30, 2020. We lease 179 of our travel centers to TA under the TA leases. As of June 30, 2020, we owned 684,000 shares of TA common stock, representing approximately 8.2% of TA’s outstanding shares of common stock. RMR LLC provides management services to both us and TA, and Adam D. Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of June 30, 2020, beneficially owned through RMR LLC 298,538 shares of TA common stock, representing approximately 3.6% of TA’s outstanding shares of common stock. See Note 6 for further information regarding our relationships, agreements and transactions with TA and Note 13 for further information regarding our investment in TA. In July 2020, we purchased 500,797 shares of TA common stock at the public offering price of $14.00 per share for an aggregate purchase price of $7,011 in an underwritten public offering. As a result of this purchase, we maintained our approximately 8.2% ownership of TA’s outstanding common stock. Sonesta. Sonesta is a private company that is majority owned by Adam D. Portnoy, one of our Managing Trustees who also serves as one of Sonesta’s directors, and a person related to him. One of Sonesta’s other directors is our other Managing Trustee, President and Chief Executive Officer and Sonesta’s other director serves as RMR LLC’s and RMR Inc.’s executive vice president, general counsel and secretary and as our Secretary. Sonesta’s chief executive officer and chief financial officer are officers of RMR LLC. Certain other officers and employees of Sonesta are former employees of RMR LLC. RMR LLC also provides certain services to Sonesta. As of June 30, 2020, we owned approximately 34% of Sonesta which managed 53 of our hotels pursuant to our Sonesta agreement. See Note 6 for further information regarding our relationships, agreements and transactions with Sonesta. Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for further information regarding our management agreements with RMR LLC. Affiliates Insurance Company, or AIC. Until its dissolution on February 13, 2020, we, ABP Trust, TA and four other companies to which RMR LLC provides management services owned AIC, an Indiana insurance company, in equal amounts. Certain of our Trustees and certain trustees or directors of the other AIC shareholders served on the board of directors of AIC until its dissolution. We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers. As of June 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $12 and $298, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. In June 2020, we received an additional liquidating distribution from AIC of $286 in connection with AIC’s dissolution. We recognized income of $130 and $534 related to our investment in AIC for the three and six months ended June 30, 2019, respectively, which amounts are included in equity in earnings of an investee in our condensed consolidated statements of operations and comprehensive loss. Our other comprehensive income (loss) attributable to common shareholders for the three and six months ended June 30, 2019 includes our proportionate share of unrealized gains and losses on securities held for sale, which were then owned by AIC, related to our investment in AIC. For further information about these and certain other such relationships and certain other related person transactions, refer to our 2019 Annual Report.
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Income Taxes |
6 Months Ended |
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Jun. 30, 2020 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Note 11. Income Taxes We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We are subject to income tax in Canada, Puerto Rico and certain states despite our qualification for taxation as a REIT. Further, we lease our managed hotels to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated tax return and are subject to federal, state and foreign income taxes. Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT. During the three months ended June 30, 2020, we recognized income tax expense of $16,660, which includes $451 of foreign taxes and $559 of state taxes. We recorded a $15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement in the three months ended June 30, 2020. See Note 5 for further information regarding this insurance settlement. During the six months ended June 30, 2020, we recognized income tax expense of $17,002 which includes $502 of foreign taxes, $850 of state taxes and the $15,650 of deferred tax liability described above. During the three months ended June 30, 2019, we recognized income tax benefit of $260 which includes $97 of foreign tax and $163 of state tax benefits. During the six months ended June 30, 2019, we recognized income tax expense of $799 which includes $218 of foreign taxes and $581 of state taxes.
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | Note 12. Segment Information We aggregate our hotels and net lease portfolio into two reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.
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Fair Value of Assets and Liabilities |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value of Assets and Liabilities | Note 13. Fair Value of Assets and Liabilities The table below presents certain of our assets and liabilities carried at fair value at June 30, 2020, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset or liability.
In addition to the investment securities included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility, term loan, senior notes and security deposits. At June 30, 2020 and December 31, 2019, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:
At June 30, 2020 and December 31, 2019, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs).
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New Accounting Pronouncements (Policies) |
6 Months Ended |
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Jun. 30, 2020 | |
| Accounting Standards Update and Change in Accounting Principle [Abstract] | |
| Basis of Accounting | The accompanying condensed consolidated financial statements of Service Properties Trust and its subsidiaries, or SVC, we, our or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.
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| Use of Estimates | The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets.
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| Variable Interest Entity | We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. |
| New Accounting Pronouncements | On January 1, 2020, we adopted FASB Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Lease related receivables are governed by the lease accounting under GAAP and are not subject to ASU No. 2016-13. We adopted this standard using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.
|
Weighted Average Common Shares (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation weighted average common shares to calculate basic and diluted earnings per share | The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
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Real Estate Properties (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of purchase price allocation | Our allocation of the purchase price for this acquisition based on the estimated fair value of the acquired assets is presented in the table below.
(1) On March 12, 2020, we acquired three net lease properties with approximately 6,696 square feet in two states with leases requiring an aggregate of $387 of annual minimum rent for an aggregate purchase price of $7,071, including acquisition related costs.
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| Schedule of sale of properties |
(2) The Destination XL Group, Inc. lease was scheduled to expire on January 31, 2026 and required an annual minimum rent of $5,221.
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment information |
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Fair Value of Assets and Liabilities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of certain of the entity's assets carried at fair value, categorized by the level of inputs used in the valuation of each asset | The table below presents certain of our assets and liabilities carried at fair value at June 30, 2020, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset or liability.
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| Schedule of fair value of additional financial instruments | At June 30, 2020 and December 31, 2019, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:
(1) Carrying value includes unamortized discounts and premiums and issuance costs.
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Basis of Presentation (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Variable Interest Entity [Line Items] | ||
| Ownership interest in subsidiaries | 100.00% | |
| Assets of TRSs | $ 8,879,545 | $ 9,033,967 |
| Liabilities of TRSs | 6,533,824 | 6,528,089 |
| Consolidated | ||
| Variable Interest Entity [Line Items] | ||
| Assets of TRSs | 110,984 | 31,920 |
| Liabilities of TRSs | $ 108,721 | $ 138,708 |
Revenue Recognition - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
| Revenue from Contract with Customer [Abstract] | |||||
| Adjustments necessary to record rent on straight line basis | $ 875 | $ (3,190) | $ (2,669) | $ (4,322) | |
| Straight line rent receivables | 7,765 | 7,765 | $ 4,054 | ||
| TA | |||||
| Related Party Transaction [Line Items] | |||||
| Straight line rent receivable, due from related persons | 40,473 | 40,473 | $ 47,057 | ||
| Deferred percentage rental income | $ 124 | $ 958 | $ 849 | $ 2,027 | |
Weighted Average Common Shares (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Earnings Per Share [Abstract] | ||||
| Weighted average common shares for basic earnings per share (in shares) | 164,382 | 164,284 | 164,376 | 164,281 |
| Effect of dilutive share awards: Unvested share awards (in shares) | 0 | 42 | 0 | 43 |
| Weighted average common shares for diluted earnings per share (in shares) | 164,382 | 164,326 | 164,376 | 164,324 |
Real Estate Properties - Schedule of Purchase Price Allocation (Details) - Net Lease Property $ in Thousands |
Mar. 12, 2020
USD ($)
|
|---|---|
| Real Estate Properties [Line Items] | |
| Purchase Price | $ 7,071 |
| Land | 880 |
| Building and Improvements | 5,363 |
| Furniture, Fixtures and Equipment | 0 |
| Intangible Assets / Liabilities, net | $ 828 |
Management Agreements and Leases - Hyatt Agreement (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2020
USD ($)
hotel
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
hotel
|
Jun. 30, 2019
USD ($)
|
|
| Hyatt Hotels Corporation | ||||
| Management Agreements and Leases [Line Items] | ||||
| Payments for capital advances | $ 3,700 | |||
| Hotel | ||||
| Management Agreements and Leases [Line Items] | ||||
| Number of properties owned | hotel | 329 | 329 | ||
| Operating agreement annual rent and return | $ 32,628 | |||
| Hotel | Hyatt Hotels Corporation | ||||
| Management Agreements and Leases [Line Items] | ||||
| Number of properties owned | hotel | 22 | 22 | ||
| Operating agreement annual rent and return | $ 22,037 | |||
| Realized returns and rents | $ 5,509 | $ 5,509 | 11,019 | $ 11,019 |
| Guarantee provided to the entity, maximum | 50,000 | 50,000 | ||
| Increase (decrease) in guaranty | 11,094 | |||
| Guarantee provided to the entity, remaining amount | $ 8,561 | $ 8,561 | ||
| Percent of available cash flows | 50.00% | |||
| Percent of gross revenues from hotel operations placed in FF&E reserve | 5.00% | |||
Management Agreements and Leases - Radisson Agreement (Details) - Hotel $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2020
USD ($)
hotel
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
hotel
|
Jun. 30, 2019
USD ($)
|
|
| Management Agreements and Leases [Line Items] | ||||
| Number of properties owned | hotel | 329 | 329 | ||
| Operating agreement annual rent and return | $ 32,628 | |||
| Radisson Agreement | ||||
| Management Agreements and Leases [Line Items] | ||||
| Number of properties owned | hotel | 9 | 9 | ||
| Operating agreement annual rent and return | $ 20,442 | |||
| Realized returns and rents | $ 5,111 | $ 5,015 | 10,221 | $ 9,846 |
| Guarantee provided to the entity, maximum | 47,523 | 47,523 | ||
| Increase (decrease) in guaranty | 13,789 | |||
| Guarantee provided to the entity, remaining amount | $ 27,426 | $ 27,426 | ||
| Percent payment of hotel cash flows | 50.00% | 50.00% | ||
| Percent of gross revenues from hotel operations placed in FF&E reserve | 5.00% | |||
Management Agreements and Leases - Wyndham Agreements (Details) $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|---|
|
Apr. 30, 2020
USD ($)
|
Jun. 30, 2020
USD ($)
hotel
|
Mar. 31, 2020
unit
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
hotel
|
Jun. 30, 2019
USD ($)
|
|
| Management Agreements and Leases [Line Items] | ||||||
| Capital improvements from leased facilities, funded | $ 45,858 | $ 37,189 | ||||
| Wyndham Agreement | ||||||
| Management Agreements and Leases [Line Items] | ||||||
| Payments for capital advances | $ 2,423 | |||||
| Hotel | ||||||
| Management Agreements and Leases [Line Items] | ||||||
| Number of properties owned | hotel | 329 | 329 | ||||
| Hotel | Wyndham Agreement | ||||||
| Management Agreements and Leases [Line Items] | ||||||
| Number of properties owned | hotel | 20 | 20 | ||||
| Hotel net income (loss) | $ (2,667) | $ (3,748) | ||||
| Realized returns and rents | $ 5,964 | 11,873 | ||||
| Capital improvements from leased facilities, funded | $ 1,212 | $ 2,278 | ||||
| Vacation Units | Wyndham Destinations Agreement | ||||||
| Management Agreements and Leases [Line Items] | ||||||
| Number of units leased | unit | 48 | |||||
Management Agreements and Leases - Guarantees and Security Deposits Generally (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Management Agreements and Leases [Line Items] | ||||
| Security deposits replenished | $ 0 | $ 9,208 | $ 0 | $ 3,422 |
| Hotel | ||||
| Management Agreements and Leases [Line Items] | ||||
| Amount by which the cash flow available to pay the entity's minimum rent or return was less than the minimum amount | 196,107 | 4,853 | 314,171 | 37,085 |
| Reduction of hotel operating expenses | 121,155 | 191,660 | 16,679 | |
| Shortfalls due to unguaranteed portions of minimum returns | $ 73,617 | $ 5,090 | $ 121,373 | $ 23,797 |
Business and Property Management Agreements with RMR LLC (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2020
USD ($)
employee
agreement
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
employee
agreement
|
Jun. 30, 2019
USD ($)
|
|
| Real Estate Properties [Line Items] | ||||
| Number of employees | employee | 0 | 0 | ||
| Amended and restate business management agreement | RMR LLC | ||||
| Real Estate Properties [Line Items] | ||||
| Number of management service agreements | agreement | 2 | 2 | ||
| Business management fees incurred | $ 8,411 | $ 9,661 | $ 18,971 | $ 19,388 |
| Incentive fee calculation period | 3 years | |||
| Related party property management and construction management fee | 921 | 27 | $ 1,941 | 38 |
| Related party reimbursement expenses | $ 139 | $ 142 | $ 266 | $ 342 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Components of provision for income taxes | ||||
| Income tax expense | $ (16,660) | $ 260 | $ (17,002) | $ (799) |
| Deferred tax liability result of insurance settlement | 15,650 | 15,650 | ||
| Current foreign tax expense | (451) | 97 | (502) | (218) |
| Current state tax expense | $ (559) | $ 163 | (850) | $ (581) |
| Income tax expense, insurance settlement | $ 15,650 | |||
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