Related Person Transactions

We have relationships and historical and continuing transactions with TA, RMR LLC, Sonesta and others related to them, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also our Trustees or officers. For further information about these and other such relationships and certain other related person transactions, please refer to our 2015 Annual Report.

TA: TA was our 100% owned subsidiary until we distributed its common shares to our shareholders in 2007. TA is our largest tenant and property operator, leasing 37% of our gross carrying value of real estate properties as of September 30, 2016. We are TA’s largest shareholder; as of September 30, 2016, we owned 3,420,000 of TA’s common shares, representing approximately 8.8% of TA’s outstanding common shares.

Our investment in TA shares, which is included in other assets in our condensed consolidated balance sheets, is recorded at fair value with the related unrealized gain (loss) included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets. We recognize the increase or decrease in the fair value of our TA shares each reporting period as unrealized gain (loss) on investment securities, which is a component of other comprehensive income (loss) in our condensed consolidated statements of comprehensive income. See Note 12 for further information regarding our investment in TA.

On June 1, 2015, we entered a transaction agreement with TA. On June 22, 2016, we and TA amended the transaction agreement. We refer to the amended transaction agreement as the Transaction Agreement. Under the Transaction Agreement, among other things, we agreed to purchase from TA four travel centers upon the completion of their development at a purchase price equal to their development costs, including the cost of the land, and two existing travel centers then owned by TA and we agreed to lease back these properties to TA under our TA leases.

In connection with the Transaction Agreement, as amended:


•	On March 31, 2016, we purchased one of the development properties from TA for $19,683 and we and TA amended our TA No. 4 agreement to add this property and our annual minimum rent under our TA No. 4 agreement increased by $1,673.

•

On June 22, 2016, we purchased two existing travel centers then owned by TA for an aggregate of $23,876 and we and TA amended our TA No. 1 agreement and TA No. 3 agreement to add these properties, respectively, and our annual minimum rent under our TA No. 1 agreement and TA No. 3 agreement increased by $1,121 and $908, respectively. We and TA also amended our TA No. 5 agreement to extend its term to 2032.


•	On June 30, 2016, we purchased one of the development properties from TA for $22,297 and we and TA amended our TA No. 2 agreement to add this property and our annual minimum rent under our TA No. 2 agreement increased by $1,895.


•	On September 30, 2016, we purchased one of the two remaining development properties from TA for $16,557 and we and TA amended our TA No. 2 agreement to add this property and our annual minimum rent under our TA No. 2 agreement increased by $1,407.


•	We currently expect to purchase the one remaining development property from TA in the first quarter of 2017 at a purchase price equal to its development cost not to exceed $29,000.

Because of the relationships between us and TA, the terms of the Transaction Agreement, as amended, were negotiated and approved by special committees of our Board of Trustees and the TA board of directors composed of our Independent Trustees and TA’s independent directors who are not also trustees or directors of the other party, which committees were represented by separate counsel.

On September 14, 2016, we purchased a vacant land parcel adjacent to a property in Holbrook, AZ that we own and lease to TA for $325 and we and TA amended our TA No. 4 agreement to add this parcel and our annual minimum rent under our TA No. 4 agreement increased by $28.

As of September 30, 2016, we leased to TA a total of 198 travel centers. As of September 30, 2016, the number of travel centers leased, the terms, the annual minimum rents and the deferred rent balances under each of our TA leases were as follows:



	Number of Travel Centers	Initial Term End ⁽¹⁾	Minimum Annual Rent as of September 30, 2016		Deferred Rent ⁽²⁾ ^{(3) (4)}
TA No. 1 Lease	40	December 31, 2029	$	50,885	$	27,421
TA No. 2 Lease	40	December 31, 2028	51,696		29,107
TA No. 3 Lease	39	December 31, 2026	52,262		29,324
TA No. 4 Lease	39	December 31, 2030	49,629		21,233
TA No. 5 Lease	40	June 30, 2032	66,685		42,915
	198		$	271,157	$	150,000


(1)	TA has two renewal options of 15 years each under each of our TA leases.


(2)	Deferred rent for the TA Nos. 1, 2, 3 and 4 leases is due and payable on the respective initial term end dates noted above.


(3)	Deferred rent for the TA No. 5 lease is due and payable on June 30, 2024.


(4)	Deferred rent is subject to acceleration at our option upon an uncured default by, or a change in control of, TA.

We recognized rental income from TA of $69,866 and $65,548 for the three months ended September 30, 2016 and 2015, respectively, and $206,950 and $183,222 for the nine months ended September 30, 2016 and 2015, respectively. Rental income for the three months ended September 30, 2016 and 2015 includes $2,823 and $3,647, respectively, and the nine months ended September 30, 2016 and 2015 includes $10,053 and $5,452, respectively, of adjustments necessary 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. Rental income for the nine months ended September 30, 2015 includes $2,048 of percentage rent recorded because the amount was no longer contingent as a result of the modifications to our TA leases in connection with the Transaction Agreement. As of September 30, 2016 and December 31, 2015, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $62,655 and $40,988, respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets.

We funded $20,255 and $29,734 for the three months ended September 30, 2016 and 2015, respectively, and $75,314 and $70,150 for the nine months ended September 30, 2016 and 2015, respectively, of qualifying capital improvements under our TA leases. As a result, TA’s annual minimum rent payable to us increased by $1,722, and $2,527 for the three months ended September 30, 2016 and 2015, respectively, and $6,402 and $5,963 for the nine months ended September 30, 2016 and 2015, respectively.

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 $408 and $937 for the three and nine months ended September 30, 2016, respectively, net of any waived percentage rent. We had no deferred percentage rent for the three and nine months ended September 30, 2015. As of June 30, 2016, we had cumulatively waived all of the $2,500 of percentage rent we previously agreed to waive. We waived percentage rent of $271 for the three months ended September 30, 2015 and $372 and $819 for the nine months ended September 30, 2016 and 2015, respectively.

RMR LLC: Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $34,942 and $17,383 for the three months ended September 30, 2016 and 2015, respectively, and $83,547 and $45,832 for the nine months ended September 30, 2016 and 2015, respectively. The business management fees for the three and nine months ended September 30, 2016 include estimated 2016 incentive fees of $25,036 and $56,272, respectively, based on our common share total return as of September 30, 2016. The actual amount of incentive fees payable to RMR LLC for 2016, if any, will be based on our common share total return, as defined, for the three year period ending December 31, 2016, and will be payable in 2017. The net business management fees we recognized for the three and nine months ended September 30, 2015 included $8,561 and $17,383, respectively, of then estimated 2015 incentive fees; in January 2016, we paid RMR LLC an incentive fee of $62,263 for 2015. The net business management fees we recognized for the 2016 and 2015 periods are included in general and administrative expenses in our condensed consolidated statements of comprehensive income.

In accordance with the terms of our business management agreement, we issued 63,119 of our common shares to RMR LLC for the period from January 1, 2015 through May 31, 2015 as payment for a part of the business management fee we recognized for that period. Beginning June 1, 2015, all management fees under our business management agreement are paid in cash.

Pursuant to our property management agreement with RMR LLC, we recognized property management fees of $9 for both of the three months ended September 30, 2016 and 2015 and $34 and $24 for the nine months ended September 30, 2016 and 2015, respectively. These fees are payable to RMR LLC in connection with the management of the office building component of one of our hotels. These amounts are included in hotel operating expenses in our condensed consolidated statements of comprehensive income.

We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf. We reimbursed RMR LLC $45 and $38 for property management related expenses related to the office building component of one of our hotels for the three months ended September 30, 2016 and 2015, respectively, and $129 and $104 for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in hotel operating expenses in our condensed consolidated statements of comprehensive income.

We have historically awarded share grants to certain RMR LLC employees under our equity compensation plans. In September 2016 and 2015, we awarded annual share grants of 79,100 and 76,250 of our common shares, respectively, to our officers and to other employees of RMR LLC. In September 2016, we purchased 19,677 of our common shares, at the closing price of our common shares on the Nasdaq on the date of purchase, from our officers and other employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. In addition, under our business management agreement we reimburse RMR LLC for our allocable costs for internal audit services. The amounts recognized as expense for share grants to RMR LLC employees and internal audit costs were $1,019 and $713 for the three months ended September 30, 2016 and 2015, respectively, and $2,125 and $1,838 for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income.

We lease office space to RMR LLC in the office building component of one of our hotels. Pursuant to our lease agreement with RMR LLC, we recognized rental income from RMR LLC for leased office space of $9 and $26 for the three and nine months ended September 30, 2016 and 2015, respectively.

RMR Inc.: In connection with our June 2015 acquisition of shares of class A common stock of The RMR Group Inc., or RMR Inc., we recorded a liability for the amount by which the estimated fair value of these shares exceeded the price we paid for these shares. This liability is included in accounts payable and other liabilities in our condensed consolidated balance sheets. This liability is being amortized on a straight line basis through December 31, 2035 as an allocated reduction to our business management fee expense. We amortized $896 and $2,689 of this liability, respectively, for the three and nine months ended September 30, 2016, and $911 and $1,142 of this liability, respectively, for the three and nine months ended September 30, 2015. These amounts are included in the net business management fee amounts for such periods. As of September 30, 2016, the remaining unamortized amount of this liability was $69,073.

As of September 30, 2016, we owned 2,503,777 shares of class A common stock of RMR Inc. We receive dividends on our RMR Inc. class A common shares as declared and paid by RMR Inc. to all holders of its class A common shares. We received a dividend of $749 on our RMR Inc. class A common shares during the three months ended June 30, 2016, which was for the period from December 14, 2015 through March 31, 2016. We received a dividend of $626 on our RMR Inc. class A common shares during the three months ended September 30, 2016, which was for the period from April 1, 2016 through June 30, 2016. On October 11, 2016, RMR Inc. declared a regular quarterly dividend of $0.25 per class A common share payable to shareholders of record on October 21, 2016. RMR Inc. has stated that it expects to pay this dividend on or about November 17, 2016.

Our investment in RMR Inc. class A common shares is included in other assets in our condensed consolidated balance sheets and is recorded at fair value with the related unrealized gain (loss) included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets. We recognize the increase or decrease in the fair value of our RMR Inc. class A common shares each reporting period as unrealized gain (loss) on investment securities, which is a component of other comprehensive income (loss) in our condensed consolidated statements of comprehensive income. See Note 12 for further information on our investment in RMR Inc.

Sonesta: Sonesta is owned by our Managing Trustees. As of September 30, 2016, Sonesta managed 33 of our hotels pursuant to management and pooling agreements.

On February 1, 2016, we acquired two extended stay hotels with 262 suites located in Cleveland and Westlake, OH for $12,000, excluding acquisition related costs, and entered into a long term management agreement with Sonesta for each hotel on terms substantially consistent with those of our existing management agreements with Sonesta for extended stay hotels. These management agreements were added to our existing pooling agreement with Sonesta.

Pursuant to our Sonesta agreement, we recognized management, system and reservation fees and the cost to reimburse Sonesta for certain guest loyalty, marketing program and third party reservation transmission fees aggregating $6,712 and $5,742 for the three months ended September 30, 2016 and 2015, respectively, and $19,007 and $16,143 for the nine months ended September 30, 2016 and 2015, respectively. In addition, we recognized procurement and construction supervision fees to Sonesta of $344 and $496 for the three months ended September 30, 2016 and 2015, respectively, and $1,268 and $1,172 for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in hotel operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

On January 4, 2016, we and Sonesta amended our pooling agreement and management agreements. Under the amended pooling agreement, a hotel may be designated as “non-economic” and removed from the pooling agreement and subject to sale and we have an early termination right under each management agreement, in each case if the applicable hotel does not meet certain criteria for the stipulated measurement period. Pursuant to the amendment, these stipulated measurement periods begin on the later of January 1, 2017 and January 1st of the year beginning at least 18 months following the effective date of the applicable management agreement. The amendment to the pooling agreement and management agreements with Sonesta were negotiated and recommended by a Special Committee of our Board of Trustees comprised solely of our Independent Trustees, and were approved by our Independent Trustees and also by our Board of Trustees.

In July 2016, we entered into an agreement to acquire a full service hotel with 236 rooms located in Milpitas, CA for a purchase price of $52,000, excluding acquisition related costs. We subsequently terminated that agreement and in October 2016 we entered into a new agreement to acquire this hotel for $46,000, excluding acquisition related costs. We currently expect to complete this acquisition during the fourth quarter of 2016. This acquisition is subject to closing conditions; accordingly, we cannot be sure that we will acquire this property or that its acquisition will not be delayed or the terms of the acquisition will not change. Upon acquisition of this hotel, we intend to rebrand this hotel as a Sonesta hotel, to enter into a hotel management agreement with Sonesta for this property on terms consistent with our other Sonesta hotel management agreements. See Note 11 for further information regarding our Sonesta agreement.

AIC: We and six other companies to which RMR LLC provides management services each own AIC in equal amounts. We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC. We paid aggregate annual premiums, including taxes and fees, of approximately $3,975 in connection with this insurance program for the policy year ending June 30, 2017, which amount may be adjusted from time to time as we acquire and dispose of properties that are included in this insurance program.

As of September 30, 2016 and December 31, 2015, our investment in AIC had a carrying value of $7,117 and $6,834, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income (loss) of $13 and ($24) related to our investment in AIC for the three months ended September 30, 2016 and 2015, respectively, and $107 and $71 for the nine months ended September 30, 2016 and 2015, respectively. Our other comprehensive income includes our proportionate part of unrealized gains (losses) on securities which are owned by AIC of $80 and ($72) for the three months ended September 30, 2016 and 2015, respectively, and $175 and ($91) for the nine months ended September 30, 2016 and 2015, respectively.

Directors’ and Officers’ Liability Insurance: We, RMR Inc., RMR LLC and certain companies to which RMR LLC provides management services participate in a combined directors’ and officers’ liability insurance policy. In September 2016, we participated in a one year extension of this combined directors’ and officers’ insurance policy through September 2018. Our premium for this policy extension was approximately $141.

See Note 11 for additional information about our agreements with TA and Sonesta.