TA TravelCenters of America Inc

TravelCenters of America Inc. 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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐						Accelerated filer ☒
Non-accelerated filer ☐						Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

Number of the registrant's shares of common stock outstanding as of August 2, 2021: 14,580,485.

TABLE OF CONTENTS

						Page
PART I — FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)			1
			Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020			1
			Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020			2
			Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020			3
			Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020			4
			Notes to Consolidated Financial Statements			6
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			28
Item 4.			Controls and Procedures			28
			Warning Concerning Forward-Looking Statements			30
PART II — OTHER INFORMATION						33
Item 1A.			Risk Factors			33
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 6.			Exhibits			34
SIGNATURE						36

As used herein, the terms "we," "us," "our" and "TA" include TravelCenters of America Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

Part I.  Financial Information

Item 1.  Financial Statements

TravelCenters of America Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands, except par value amount)

			June 30, 2021						December 31, 2020
Assets:
Current assets:
Cash and cash equivalents			$	583,251					$	483,151
Accounts receivable (net of allowance for doubtful accounts of $1,314 and $1,016    as of June 30, 2021 and December 31, 2020, respectively)			142,835						94,429
Inventory			165,920						172,830
Other current assets			22,209						35,506
Total current assets			914,215						785,916
Property and equipment, net			785,052						801,789
Operating lease assets			1,693,350						1,734,883
Goodwill			22,213						22,213
Intangible assets, net			11,209						11,529
Other noncurrent assets			111,469						87,530
Total assets			$	3,537,508					$	3,443,860
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable			$	229,207					$	158,075
Current operating lease liabilities			114,023						111,255
Other current liabilities			196,953						175,867
Total current liabilities			540,183						445,197
Long term debt, net			525,070						525,397
Noncurrent operating lease liabilities			1,706,020						1,763,166
Other noncurrent liabilities			100,853						69,121
Total liabilities			2,872,126						2,802,881
Stockholders' equity:
Common stock, $0.001 par value, 216,000 shares of common stock authorized as of    June 30, 2021 and December 31, 2020, and 14,581 and 14,574 shares of    common stock issued and outstanding as of June 30, 2021 and    December 31, 2020, respectively			14						14
Additional paid-in capital			783,137						781,841
Accumulated other comprehensive loss			(222)						(205)
Accumulated deficit			(117,547)						(141,084)
Total TA stockholders' equity			665,382						640,566
Noncontrolling interest			—						413
Total stockholders' equity			665,382						640,979
Total liabilities and stockholders' equity			$	3,537,508					$	3,443,860

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

TravelCenters of America Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(in thousands, except per share amounts)

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Revenues:
Fuel			$	1,328,631					$	577,410					$	2,405,889					$	1,452,339
Nonfuel			501,810						405,570						949,724						830,577
Rent and royalties from franchisees			3,839						3,123						7,763						6,535
Total revenues			1,834,280						986,103						3,363,376						2,289,451
Cost of goods sold (excluding depreciation):
Fuel			1,228,339						485,510						2,228,167						1,278,484
Nonfuel			198,708						162,951						370,930						324,670
Total cost of goods sold			1,427,047						648,461						2,599,097						1,603,154
Site level operating expense			233,996						197,522						461,226						434,086
Selling, general and administrative expense			36,590						37,976						72,520						75,204
Real estate rent expense			63,611						63,079						127,480						126,667
Depreciation and amortization expense			24,139						28,254						47,968						56,814
Other operating income, net			(872)						—						(872)						—
Income (loss) from operations			49,769						10,811						55,957						(6,474)
Interest expense, net			11,739						7,233						23,123						14,689
Other expense, net			1,304						335						2,701						876
Income (loss) before income taxes			36,726						3,243						30,133						(22,039)
(Provision) benefit for income taxes			(7,779)						(1,087)						(6,929)						5,654
Net income (loss)			28,947						2,156						23,204						(16,385)
Less: net (income) loss for noncontrolling interest			(409)						32						(333)						52
Net income (loss) attributable to    common stockholders			$	29,356					$	2,124					$	23,537					$	(16,437)
Other comprehensive (loss) income, net of taxes:
Foreign currency income (loss), net of taxes    of $19, $47, $35 and $(60) respectively			$	(9)					$	2					$	(17)					$	(18)
Other comprehensive (loss) income attributable to common stockholders			(9)						2						(17)						(18)
Comprehensive income (loss) attributable to    common stockholders			$	29,347					$	2,126					$	23,520					$	(16,455)
Net income (loss) per share of common stock    attributable to common stockholders:
Basic and diluted			$	2.02					$	0.26					$	1.62					$	(1.98)

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

TravelCenters of America Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

			Six Months Ended June 30,
			2021						2020
Cash flows from operating activities:
Net income (loss)			$	23,204					$	(16,385)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash rent credits, net			(11,634)						(12,068)
Depreciation and amortization expense			47,968						56,814
Deferred income tax benefit (provision)			6,748						(5,357)
Gain on sale of assets, net			(872)						—
Changes in operating assets and liabilities:
Accounts receivable			(48,712)						54,415
Inventory			6,922						33,878
Other assets			8,622						5,698
Accounts payable and other liabilities			85,761						24,145
Other, net			6,067						4,293
Net cash provided by operating activities			124,074						145,433
Cash flows from investing activities:
Capital expenditures			(27,409)						(27,552)
Proceeds from other asset sales			7,416						734
Investment in equity investee			(1,350)						—
Other			148						(914)
Net cash used in investing activities			(21,195)						(27,732)
Cash flows from financing activities:
West Greenwich Loan borrowings			—						16,600
Payments on Revolving Credit Facility			—						(7,900)
Payments on Term Loan Facility			(1,000)						—
Distributions to noncontrolling interest			(80)						(65)
Acquisition of stock from employees			(87)						—
Other, net			(1,674)						(840)
Net cash (used in) provided by financing activities			(2,841)						7,795
Effect of exchange rate changes on cash			62						84
Net increase in cash and cash equivalents			100,100						125,580
Cash and cash equivalents at the beginning of the period			483,151						17,206
Cash and cash equivalents at the end of the period			$	583,251					$	142,786
Supplemental disclosure of cash flow information:
Lease modification (operating to finance lease)			$	28,201					$	—
Interest paid, net of capitalized interest			21,840						14,294
Income taxes refunded			27						464

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

TravelCenters of America Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands)

			Number of Shares of Common Stock						Common Stock						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total TA Stockholders' Equity						Noncontrolling Interest						Total Stockholders' Equity
March 31, 2021			14,564						$	14					$	782,524					$	(213)					$	(146,903)					$	635,422					$	409					$	635,831
Grants under share award plan and    stock based compensation, net			17						—						1,213						—						—						1,213						—						1,213
Disposal of noncontrolling interest in QSL			—						—						(600)						—						—						(600)						—						(600)
Other comprehensive loss,    net of taxes			—						—						—						(9)						—						(9)						—						(9)
Net income (loss)			—						—						—						—						29,356						29,356						(409)						28,947
June 30, 2021			14,581						$	14					$	783,137					$	(222)					$	(117,547)					$	665,382					$	—					$	665,382
March 31, 2020			8,319						$	8					$	699,491					$	(192)					$	(145,746)					$	553,561					$	1,471					$	555,032
Grants under share award plan and    stock based compensation, net			(21)						—						1,128						—						—						1,128						—						1,128
Distribution to    noncontrolling interest			—						—						—						—						—						—						(33)						(33)
Other comprehensive income,    net of taxes			—						—						—						2						—						2						—						2
Net income			—						—						—						—						2,124						2,124						32						2,156
June 30, 2020			8,298						$	8					$	700,619					$	(190)					$	(143,622)					$	556,815					$	1,470					$	558,285

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

TravelCenters of America Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands)

			Number of Shares of Common Stock						Common Stock						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total TA Stockholders' Equity						Noncontrolling Interest						Total Stockholders' Equity
December 31, 2020			14,574						$	14					$	781,841					$	(205)					$	(141,084)					$	640,566					$	413					$	640,979
Grants under share award plan and    stock based compensation, net			7						—						1,896						—						—						1,896						—						1,896
Distribution to    noncontrolling interest			—						—						—						—						—						—						(80)						(80)
Disposal of noncontrolling interest in QSL			—						—						(600)						—						—						(600)						—						(600)
Other comprehensive loss,    net of taxes			—						—						—						(17)						—						(17)						—						(17)
Net income (loss)			—						—						—						—						23,537						23,537						(333)						23,204
June 30, 2021			14,581						14						783,137						(222)						(117,547)						665,382						—						665,382
December 31, 2019			8,307						$	8					$	698,402					$	(172)					$	(127,185)					$	571,053					$	1,483					$	572,536
Grants under share award plan and    stock based compensation, net			(9)						—						2,217						—						—						2,217						—						2,217
Distribution to    noncontrolling interest			—						—						—						—						—						—						(65)						(65)
Other comprehensive loss,    net of taxes			—						—						—						(18)						—						(18)						—						(18)
Net (loss) income			—						—						—						—						(16,437)						(16,437)						52						(16,385)
June 30, 2020			8,298						8						700,619						(190)						(143,622)						556,815						1,470						558,285

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

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

1.Business Description and Basis of Presentation

TravelCenters of America Inc. is a Maryland corporation. We operate or franchise 278 travel centers, standalone truck service facilities and a standalone restaurant. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.

As of June 30, 2021, our business included 274 travel centers in 44 states in the United States and the province of Ontario, Canada, primarily along the U.S. interstate highway system, operated primarily under the "TravelCenters of America," "TA," "TA Express," "Petro Stopping Centers" and "Petro" brand names. Of these travel centers, we owned 51, we leased 181, we operated two for a joint venture in which we owned a noncontrolling interest and 40 were owned or leased from others by our franchisees. We operated 232 of our travel centers and franchisees operated 42 travel centers, including two we leased to franchisees. Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, diesel exhaust fluid, full service restaurants, quick service restaurants and various customer amenities.

As of June 30, 2021, our business included three standalone truck service facilities operated under the "TA Truck Service" brand name. Of these standalone truck service facilities, we leased two and owned one. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks.

As of June 30, 2021, our business included one standalone restaurant that we operated for a joint venture in which we owned a noncontrolling interest.

On April 21, 2021, we completed the sale of our Quaker Steak & Lube, or QSL, business for $5,000, excluding costs to sell and certain closing adjustments. See Note 3 for more information about the sale of our QSL business.

We manage our business as one segment. We make specific disclosures concerning fuel and nonfuel products and services because they facilitate our discussion of trends and operational initiatives within our business and industry. We have a single travel center located in a foreign country, Canada, that we do not consider material to our operations.

The accompanying interim consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. The disclosures presented do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, or our Annual Report. In the opinion of our management, the accompanying unaudited interim consolidated financial statements include all adjustments, including normal recurring adjustments, considered necessary for a fair presentation. All intercompany transactions and balances have been eliminated. While our revenues are modestly seasonal, the quarterly variations in our operating results may reflect greater seasonal differences because our rent expense and certain other costs do not vary seasonally. The COVID-19 pandemic has, and economic conditions occasionally in the past have, significantly altered the seasonal aspects of our business, and they may have similar impacts in the future. For this and other reasons, our operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

Fair Value Measurement

Senior Notes

We collectively refer to our $110,000 of 8.25% Senior Notes due 2028, our $120,000 of 8.00% Senior Notes due 2029 and our $100,000 of 8.00% Senior Notes due 2030 as our Senior Notes, which are our senior unsecured obligations. We estimate that, based on their trading prices (a Level 2 input), the aggregate fair value of our Senior Notes on June 30, 2021, was $348,284.

Recently Issued Accounting Pronouncement and Other Accounting Matters

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. We adopted this standard on January 1, 2021, using the prospective transition method. The implementation of this update did not have a material impact on our consolidated financial statements.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as a response to the economic uncertainty resulting from the COVID-19 pandemic, which, among other things, included several temporary changes to corporate income tax provisions such as modifications to limitations on deductibility of net operating losses and business interest, provisions relating to the deferral of the employer portion of social security taxes incurred through December 31, 2020, and employee retention tax credit, which is a refundable payroll credit for certain qualified wages and health benefits. As of June 30, 2021, we have deferred $23,340 of employer social security payments, and have included this amount in other current liabilities. On December 27, 2020 and March 11, 2021, the CARES Act was modified by the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021, respectively, extending the employee retention tax credit through December 31, 2021. During the year ended December 31, 2020, we recognized $3,268 relating to the employee retention tax credit for credits evaluated through June 30, 2020. We are in the process of evaluating the amount of any credits for which we may be eligible for the periods subsequent to March 11, 2020, and we are currently unable to estimate that amount, if any. We will continue to evaluate the impact of this legislation on our operations and consolidated financial statements in future periods and to the extent additional guidance and regulations are issued.

2. Revenues

We recognize revenues based on the consideration specified in the contract with the customer, excluding any sales incentives (such as customer loyalty programs and customer rebates) and amounts collected on behalf of third parties (such as sales and excise taxes). The majority of our revenues are generated at the point of sale in our retail locations. Revenues consist of fuel revenues, nonfuel revenues and rents and royalties from franchisees.

Disaggregation of Revenues

We disaggregate our revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in our consolidated statements of operations and comprehensive income (loss). Nonfuel revenues disaggregated by type of good or service for the three and six months ended June 30, 2021 and 2020, were as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Nonfuel revenues:
Store and retail services			$	194,440					$	158,240					$	366,212					$	310,058
Truck service			194,197						160,987						365,328						314,954
Restaurant			79,938						61,492						153,807						155,704
Diesel exhaust fluid			33,235						24,851						64,377						49,861
Total nonfuel revenues			$	501,810					$	405,570					$	949,724					$	830,577

TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

Contract Liabilities

Our contract liabilities, which are presented in our consolidated balance sheets in other current and other noncurrent liabilities, primarily include deferred revenues related to our customer loyalty programs, gift cards, rebates payable to customers and other deferred revenues. The following table shows the changes in our contract liabilities between periods.

			Customer Loyalty Programs						Other						Total
December 31, 2019			$	17,993					$	4,822					$	22,815
Increases due to unsatisfied performance obligations arising during the period			115,792						15,791						131,583
Revenues recognized from satisfied performance obligations during the period			(98,147)						(12,879)						(111,026)
Other			(12,817)						(589)						(13,406)
December 31, 2020			22,821						7,145						29,966
Increases due to unsatisfied performance obligations arising during the period			64,030						6,926						70,956
Revenues recognized from satisfied performance obligations during the period			(53,563)						(6,109)						(59,672)
Other			(7,791)						(1,496)						(9,287)
June 30, 2021			$	25,497					$	6,466					$	31,963

As of June 30, 2021, we expect the unsatisfied performance obligations, relating to our customer loyalty programs and other contract liabilities, will generally be satisfied within 12 months.

3.    Disposition Activity

On April 21, 2021, we completed the sale of our QSL business for $5,000 excluding costs to sell and certain closing adjustments. We had classified our QSL business as held for sale as of December 31, 2020. We did not treat the sale of QSL as a discontinued operation, as we concluded that its effect was not material and did not represent a strategic shift in our business. As of the date of sale, our QSL business included 41 standalone restaurants in 11 states in the United States operated primarily under the QSL brand name.

During the three months ended June 30, 2021, we recognized a $606 loss on the sale of QSL, which was included in other income from operations, net in our consolidated statement of operations and comprehensive income (loss). During the first quarter of 2021, we recorded impairment charges of $650, primarily resulting from the change in fair value of underlying assets sold, which were included in depreciation and amortization expense in our consolidated statement of operations and comprehensive income (loss). Impairment charges relating to our QSL net asset disposal group cumulatively totaled $14,365, which includes the $13,715 impairment charge recognized during the year ended December 31, 2020.

4.    Stockholders' Equity

The following table presents a reconciliation of net income (loss) attributable to common stockholders to net income (loss) available to common stockholders and the related earnings per share of common stock for the three and six months ended June 30, 2021 and 2020.

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Net income (loss) attributable to common stockholders			$	29,356					$	2,124					$	23,537					$	(16,437)
Less: net (income) loss attributable to    participating securities			667						97						545						(778)
Net income (loss) available to common stockholders			$	28,689					$	2,027					$	22,992					$	(15,659)
Weighted average shares of common stock(1)			14,236						7,944						14,232						7,924
Basic and diluted net income (loss) per share of common stock attributable to common stockholders			$	2.02					$	0.26					$	1.62					$	(1.98)

(1) Excludes unvested shares of common stock awarded under our share award plans, in which shares of common stock are considered participating securities because they participate equally in earnings and losses with all of our other shares of common stock. The weighted average number of unvested shares of common stock outstanding for the three months ended June 30, 2021 and 2020, was 331 and 380, respectively. The weighted average number of unvested shares of common stock outstanding for the six months ended June 30, 2021 and 2020, was 337 and 394, respectively.

5.    Leasing Transactions

As a Lessee

We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our five leases with Service Properties Trust, or SVC, which are further described below. Certain of our leases include renewal options, and certain leases include escalation clauses and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets.

As of June 30, 2021, most of our SVC Leases (as defined below), the leases covering our other properties and most of our equipment leases were classified as operating leases and certain of our other equipment leases and one SVC lease were classified as finance leases. As of June 30, 2021, our non-SVC finance lease assets and liabilities were immaterial to our consolidated financial statements. Finance lease assets were included in other noncurrent assets, with the corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, on our consolidated balance sheets.

Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the SVC Leases.

Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the three and six months ended June 30, 2021 and 2020, our lease costs consisted of the following:

			Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss)						Three Months Ended June 30,
									2021						2020
Operating lease costs: SVC Leases			Real estate rent expense						$	58,952					$	59,498
Operating lease costs: other			Real estate rent expense						2,398						2,844
Variable lease costs: SVC Leases			Real estate rent expense						2,105						605
Variable lease costs: other			Real estate rent expense						156						132
Total real estate rent expense									63,611						63,079
Operating lease costs: equipment and other			Site level operating expense and selling,    general and administrative expense						776						950
Financing lease costs: equipment and other			Site level operating expense						77						—
Short-term lease costs			Site level operating expense and selling,    general and administrative expense						175						411
Amortization of finance lease assets:    SVC Leases			Depreciation and amortization expense						553						—
Amortization of finance lease assets: other			Depreciation and amortization expense						409						—
Interest on finance lease liabilities:    SVC Leases			Interest expense, net						308						—
Interest on finance lease liabilities: other			Interest expense, net						108						—
Sublease income			Nonfuel revenues						(517)						(527)
Net lease costs									$	65,500					$	63,913

TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

			Classification in our Consolidated Statements of Operations and Comprehensive Income (Loss)						Six Months Ended June 30,
									2021						2020
Operating lease costs: SVC Leases			Real estate rent expense						$	118,089					$	118,999
Operating lease costs: other			Real estate rent expense						5,082						5,677
Variable lease costs: SVC Leases			Real estate rent expense						3,971						1,701
Variable lease costs: other			Real estate rent expense						338						290
Total real estate rent expense									127,480						126,667
Operating lease costs: equipment and other			Site level operating expense and selling,    general and administrative expense						1,622						1,916
Financing lease costs: equipment and other			Site level operating expense						99						—
Short-term lease costs			Site level operating expense and selling,    general and administrative expense						342						950
Amortization of finance lease assets:    SVC Leases			Depreciation and amortization expense						737						—
Amortization of finance lease assets: other			Depreciation and amortization expense						659						—
Interest on finance lease liabilities:    SVC Leases			Interest expense, net						411						—
Interest on finance lease liabilities: other			Interest expense, net						189						—
Sublease income			Nonfuel revenues						(1,003)						(1,023)
Net lease costs									$	130,536					$	128,510

Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year as of June 30, 2021, were as follows:

			SVC Leases(1)						Other						Total
Years ended December 31:
2021			$	134,643					$	2,371					$	137,014
2022			268,936						3,647						272,583
2023			255,343						1,757						257,100
2024			251,150						620						251,770
2025			250,667						490						251,157
Thereafter			1,783,837						2,288						1,786,125
Total operating lease payments			2,944,576						11,173						2,955,749
Less: present value discount(2)			(1,133,897)						(1,809)						(1,135,706)
Present value of operating lease liabilities			$	1,810,679					$	9,364					$	1,820,043

(1) Includes rent for properties we sublease from SVC and pay directly to SVC's landlords.

(2) The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the SVC Leases and our incremental borrowing rate for all other leases.

The weighted average remaining lease term for our operating leases as of June 30, 2021, was approximately 12 years. Our weighted average discount rate for our operating leases as of June 30, 2021, was approximately 9.1%.

During the six months ended June 30, 2021 and 2020, we paid $139,113 and $138,735, respectively, for amounts that had been included in the measurement of our operating lease liabilities.

TravelCenters of America Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars and shares in thousands, except per share amounts)

As of June 30, 2021 and December 31, 2020, our operating lease assets and liabilities consisted of the following:

			June 30, 2021						December 31, 2020
Operating lease assets:
SVC Leases			$	1,684,580					$	1,724,428
Other			8,770						10,455
Total operating lease assets			$	1,693,350					$	1,734,883
Current operating lease liabilities:
SVC Leases			$	109,819					$	106,788
Other			4,204						4,467
Total current operating lease liabilities			$	114,023					$	111,255
Noncurrent operating lease liabilities:
SVC Leases			$	1,700,860					$	1,756,449
Other			5,160						6,717
Total noncurrent operating lease liabilities			$	1,706,020					$	1,763,166

On March 9, 2021, we and SVC amended one of the SVC Leases, pursuant to which, a third party ground lease at one of the 179 travel center properties that we lease from SVC, which was previously accounted for as an operating lease, is now accounted for as a finance lease. As a result of this lease modification, as of June 30, 2021, we recorded $27,648 in other noncurrent assets, $1,373 in other current liabilities and $26,698 in other noncurrent liabilities on our consolidated balance sheet.

Maturities of the financing lease liabilities related to the amended SVC lease noted above that had remaining noncancelable lease terms in excess of one year as of June 30, 2021, were as follows:

(1) The discount rate used to derive the present value of unpaid lease payments is based on the rate implicit in the SVC Lease.

Leasing Agreements with SVC. As of June 30, 2021, we leased from SVC a total of 179 properties under five leases that expire between 2029 and 2035, subject to our right to extend those leases. We refer to these five leases collectively as the SVC Leases.

We recognized total real estate rent expense under the SVC Leases of $61,057 and $60,103 for the three months ended June 30, 2021 and 2020, respectively, and $122,060 and $120,700 for the six months ended June 30, 2021 and 2020, respectively. Included in these rent expense amounts are percentage rent payable of $1,591 and $124 for the three months ended June 30, 2021 and 2020, respectively, and $2,977 and $849 for the six months ended June 30, 2021 and 2020, respectively, which are based on a percentage of the increases in total nonfuel revenues at each leased property over base year levels, deferred rent of $4,404 and $8,807 for the three and six month periods, respectively, and adjustments for future increases in minimum annual rent on a straight line basis and estimated future payments by us for the cost of removing underground storage tanks on a straight line basis. The remaining balance of our deferred rent obligations was $30,826 as of June 30, 2021.

Pursuant to the SVC Leases, we may request that SVC purchase qualifying capital improvements we make at the leased travel centers in return for increased annual minimum rent. We did not sell to SVC any improvements we made to properties leased from SVC for the three and six months ended June 30, 2021 and 2020.

As permitted by the SVC Leases, we sublease a portion of certain travel centers to third parties to operate other retail operations. These subleases are classified as operating leases. We recognized sublease rental income of $517 and $527 for the three months ended June 30, 2021 and 2020, respectively, and $1,003 and $1,023 for the six months ended June 30, 2021 and 2020, respectively.

As a Lessor

We leased two travel centers to franchisees as of June 30, 2021 and 2020. Rent revenues from these operating leases totaled $584 and $572 for the three months ended June 30, 2021 and 2020, respectively, and $1,168 and $1,144 for the six months ended June 30, 2021 and 2020, respectively. Future minimum lease payments due to us for the two leased sites under these operating leases as of June 30, 2021, were $1,190 for the remainder of 2021 and $1,190 for 2022. See above for information regarding certain travel centers that we lease from SVC in which we sublease a portion of the travel centers to third parties to operate other retail operations.

6.    Business Management Agreement with RMR

The RMR Group LLC, or RMR, provides us certain services that we require to operate our business, and which relate to various aspects of our business. RMR provides these services pursuant to a business management agreement. Pursuant to the business management agreement, we incurred aggregate fees and certain cost reimbursements payable to RMR of $3,661 and $3,040 for the three months ended June 30, 2021 and 2020, respectively, and $6,596 and $6,144 for the six months ended June 30, 2021 and 2020, respectively, which included reimbursements for our share of RMR's costs for providing internal audit services. These amounts are included in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss). For more information about our relationship with RMR, see Note 7 of this Quarterly Report and our Annual Report.

7.    Related Party Transactions

We have relationships and historical and continuing transactions with SVC, RMR and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have directors, trustees or officers who are also our Directors or officers. RMR is a majority owned subsidiary of The RMR Group Inc. The Chair of our Board of Directors and one of our Managing Directors, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc. Mr. Portnoy is also a managing director and the president and chief executive officer of The RMR Group Inc. and an officer and employee of RMR. Jonathan M. Pertchik, our other Managing Director and Chief Executive Officer, also serves as an officer and employee of RMR. Certain of our other officers and SVC's officers also serve as officers and employees of RMR. Some of our Independent Directors also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services. Mr. 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, including certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies.

As of June 30, 2021, Mr. Portnoy beneficially owned 659 shares of our common stock (including indirectly through RMR), representing approximately 4.5% of our outstanding shares of common stock.

Relationship with SVC

We are SVC's largest tenant and SVC is our principal landlord and second largest stockholder. As of June 30, 2021, SVC owned 1,185 shares of our common stock, representing approximately 8.1% of our outstanding shares of common stock. As of June 30, 2021, we leased from SVC a total of 179 travel center properties under the SVC Leases. See Note 5 of this Quarterly Report for more information about our lease agreements with SVC. Mr. Portnoy serves as a managing trustee and chair of the board of trustees of SVC.

Our Manager, RMR

RMR provides certain services we require to operate our business. We have a business management agreement with RMR to provide management services to us, which relates to various aspects of our business generally. See Note 6 of this Quarterly Report for more information about our business management agreement with RMR.

Retirement and Separation Arrangements

In December 2019, we and RMR entered into a retirement agreement with Andrew J. Rebholz. Pursuant to his retirement agreement, Mr. Rebholz continued to serve, through June 30, 2020, as a non-executive employee in order to assist in transitioning his duties and responsibilities to his successor. Under Mr. Rebholz's retirement agreement, consistent with past practice, we paid Mr. Rebholz his current annual base salary of $300 until June 30, 2020, a cash bonus in the amount of $1,000 in December 2019 and an additional cash payment in the amount of $1,000 in June 2020, and we fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Rebholz.

In February 2020, we and RMR entered into a separation agreement with our former Executive Vice President, Chief Financial Officer and Treasurer, William E. Myers. Pursuant to his separation agreement, in 2020, we paid Mr. Myers $300 and fully accelerated the vesting of any unvested shares of our common stock previously awarded to Mr. Myers.

Sale of Property

In May 2021, we sold a property located in Mesquite, Texas to Industrial Logistics Properties Trust, or ILPT, for a sales price of $2,200, excluding selling costs of $15. RMR provides management services to ILPT and Mr. Portnoy serves as the chair of our board of trustee and as a managing trustee of ILPT. The gain on sale of assets of $1,504 was included in other operating income, net for the three and six months ended June 30, 2021.

For more information about these and other such relationships and certain other related person transactions, see our Annual Report.

8.    Contingencies

Environmental Contingencies

Extensive environmental laws regulate our operations and properties. These laws may require us to investigate and clean up hazardous substances, including petroleum or natural gas products, released at our owned and leased properties. Governmental entities or third parties may hold us liable for property damage and personal injuries, and for investigation, remediation and monitoring costs incurred in connection with any contamination and regulatory compliance at our locations. We use both underground storage tanks and above ground storage tanks to store petroleum products, natural gas and other hazardous substances at our locations. We must comply with environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting and financial assurance for corrective action in the event of a release. At some locations we must also comply with environmental laws relative to vapor recovery or discharges to water. Under the terms of the SVC Leases, we generally have agreed to indemnify SVC for any environmental liabilities related to properties that we lease from SVC and we are required to pay all environmental related expenses incurred in the operation of the leased properties. We have entered into certain other arrangements in which we have agreed to indemnify third parties for environmental liabilities and expenses resulting from our operations.

From time to time we have received, and in the future likely will receive, notices of alleged violations of environmental laws or otherwise have become or will become aware of the need to undertake corrective actions to comply with environmental laws at our locations. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances at our locations. In some cases we have received, and may receive in the future, contributions to partially offset our environmental costs from insurers, from state funds established for environmental clean up associated with the sale of petroleum products or from indemnitors who agreed to fund certain environmental related costs at locations purchased from those indemnitors. To the extent we incur material amounts for environmental matters for which we do not receive or expect to receive insurance or other third party reimbursement and for which we have not previously recorded a liability, our operating results may be materially adversely affected. In addition, to the extent we fail to comply with environmental laws and regulations, or we become subject to costs and requirements not similarly experienced by our competitors, our competitive position may be harmed.

As of June 30, 2021, we accrued a current liability of $2,144 and a noncurrent liability of $1,155 for environmental matters as well as a receivable, which is recorded in noncurrent assets in our consolidated balance sheets, for expected recoveries of certain of these estimated future expenditures of $913, resulting in an estimated net amount of $2,386 that we expect to fund in the future. We cannot precisely know the ultimate costs we may incur in connection with currently known environmental related violations, corrective actions, investigation and remediation; however, we do not expect the costs for such matters to be material, individually or in the aggregate, to our financial position or results of operations.

We currently have primary insurance of up to $20,000 per incident and up to $20,000 in the aggregate for certain environmental liabilities, subject, in each case, to certain limitations and deductibles. Our current insurance policy expires in June 2024 and we can provide no assurance that we will be able to maintain similar environmental insurance coverage in the future on acceptable terms.

We cannot predict the ultimate effect of changing circumstances and changing environmental laws may have on us in the future or the ultimate outcome of matters currently pending. We cannot be certain that contamination presently unknown to us does not exist at our sites, or that a material liability will not be imposed on us in the future. If we discover additional environmental issues, or if government agencies impose additional environmental requirements, increased environmental compliance or remediation expenditures may be required, which could have a material adverse effect on us.

Legal Proceedings

We are routinely involved in various legal and administrative proceedings incidental to the ordinary course of business, including commercial disputes, employment related claims, wage and hour claims, premises liability claims and tax audits among others. We do not expect that any litigation or administrative proceedings in which we are presently involved, or of which we are aware, will have a material adverse effect on our business, financial condition, results of operations or cash flows.

9.    Inventory

Inventory as of June 30, 2021 and December 31, 2020, consisted of the following:

			June 30, 2021						December 31, 2020
Nonfuel products			$	132,841					$	143,440
Fuel products			33,079						29,390
Total inventory			$	165,920					$	172,830

10.    Equity Investments

On April 30, 2021, we reduced our ownership in Epona, LLC, owner of QuikQ LLC, an independent full-service fuel payment solutions provider, from 50% to less than 50%, for which a pre-tax loss of $1.8 million was included in other expense, net in our consolidated statements of operations and comprehensive income (loss) for the three months ended June 30, 2021. This investment will continue to be accounted for under the equity method.