SVC filing — read by section

Item 1. Financial Statements

Item 1. Financial Statements 
 
 SERVICE PROPERTIES TRUST 
 CONDENSED CONSOLIDATED BALANCE SHEETS 
 (Unaudited) 
 (dollars in thousands, except share data) 
 
 June 30, 
2020 
 
 December 31, 
2019 
 
 ASSETS 
 
 Real estate properties: 
 
 Land 
 
 $ 
 2,033,292 
 
 $ 
 2,066,602 
 
 Buildings, improvements and equipment 
 
 9,113,157 
 
 9,318,434 
 
 Total real estate properties, gross 
 
 11,146,449 
 
 11,385,036 
 
 Accumulated depreciation 
 
 ( 3,147,359 
 ) 
 
 ( 3,120,761 
 ) 
 
 Total real estate properties, net 
 
 7,999,090 
 
 8,264,275 
 
 Acquired real estate leases and other intangibles, net 
 
 350,546 
 
 378,218 
 
 Assets held for sale 
 
 152,367 
 
 87,493 
 
 Cash and cash equivalents 
 
 20,206 
 
 27,633 
 
 Restricted cash 
 
 29,652 
 
 53,626 
 
 Due from related persons 
 
 60,999 
 
 68,653 
 
 Other assets, net 
 
 266,685 
 
 154,069 
 
 Total assets 
 
 $ 
 8,879,545 
 
 $ 
 9,033,967 
 
 LIABILITIES AND SHAREHOLDERS’ EQUITY 
 
 Revolving credit facility 
 
 $ 
 33,127 
 
 $ 
 377,000 
 
 Term loan, net 
 
 397,358 
 
 397,889 
 
 Senior unsecured notes, net 
 
 5,732,018 
 
 5,287,658 
 
 Security deposits 
 
 9,276 
 
 109,403 
 
 Accounts payable and other liabilities 
 
 352,473 
 
 335,696 
 
 Due to related persons 
 
 9,572 
 
 20,443 
 
 Total liabilities 
 
 6,533,824 
 
 6,528,089 
 
 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 
 
 1,646 
 
 1,646 
 
 Additional paid in capital 
 
 4,548,880 
 
 4,547,529 
 
 Cumulative net income available for common shareholders 
 
 3,420,646 
 
 3,491,645 
 
 Cumulative common distributions 
 
 ( 5,625,451 
 ) 
 
 ( 5,534,942 
 ) 
 
 Total shareholders’ equity 
 
 2,345,721 
 
 2,505,878 
 
 Total liabilities and shareholders’ equity 
 
 $ 
 8,879,545 
 
 $ 
 9,033,967 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements. 
 
 3 

 Table of Contents 

 SERVICE PROPERTIES TRUST 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 (Unaudited) 
 (dollars in thousands, except share data) 
 
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Revenues: 
 
 Hotel operating revenues 
 
 $ 
 117,356 
 
 $ 
 541,215 
 
 $ 
 500,859 
 
 $ 
 996,078 
 
 Rental income 
 
 97,584 
 
 68,217 
 
 197,656 
 
 136,890 
 
 FF&E reserve income 
 
 — 
 
 1,130 
 
 201 
 
 2,502 
 
 Total revenues 
 
 214,940 
 
 610,562 
 
 698,716 
 
 1,135,470 
 
 Expenses: 
 
 Hotel operating expenses 
 
 46,957 
 
 380,431 
 
 318,105 
 
 698,116 
 
 Other operating expenses 
 
 3,565 
 
 1,272 
 
 7,324 
 
 2,712 
 
 Depreciation and amortization 
 
 127,427 
 
 99,196 
 
 255,353 
 
 198,561 
 
 General and administrative 
 
 11,302 
 
 12,207 
 
 25,326 
 
 24,442 
 
 Loss on asset impairment 
 
 28,514 
 
 — 
 
 45,254 
 
 — 
 
 Total expenses 
 
 217,765 
 
 493,106 
 
 651,362 
 
 923,831 
 
 Gain (loss) on sale of real estate 
 
 ( 2,853 
 ) 
 
 — 
 
 ( 9,764 
 ) 
 
 159,535 
 
 Gain on insurance settlement 
 
 62,386 
 
 — 
 
 62,386 
 
 — 
 
 Dividend income 
 
 — 
 
 876 
 
 — 
 
 1,752 
 
 Unrealized gains (losses) on equity securities, net 
 
 3,848 
 
 ( 60,788 
 ) 
 
 ( 1,197 
 ) 
 
 ( 39,811 
 ) 
 
 Interest income 
 
 15 
 
 449 
 
 277 
 
 1,086 
 
 Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $3,486, $2,570, $6,774 and $5,140, respectively) 
 
 ( 72,072 
 ) 
 
 ( 49,601 
 ) 
 
 ( 143,147 
 ) 
 
 ( 99,367 
 ) 
 
 Loss on early extinguishment of debt 
 
 ( 6,970 
 ) 
 
 — 
 
 ( 6,970 
 ) 
 
 — 
 
 Income (loss) before income taxes and equity in earnings (losses) of an investee 
 
 ( 18,471 
 ) 
 
 8,392 
 
 ( 51,061 
 ) 
 
 234,834 
 
 Income tax (expense) benefit 
 
 ( 16,660 
 ) 
 
 260 
 
 ( 17,002 
 ) 
 
 ( 799 
 ) 
 
 Equity in earnings (losses) of an investee 
 
 ( 2,218 
 ) 
 
 130 
 
 ( 2,936 
 ) 
 
 534 
 
 Net income (loss) 
 
 ( 37,349 
 ) 
 
 8,782 
 
 ( 70,999 
 ) 
 
 234,569 
 
 Other comprehensive income (loss): 
 
 Equity interest in investee’s unrealized gains (losses) 
 
 — 
 
 71 
 
 — 
 
 137 
 
 Other comprehensive income (loss) 
 
 — 
 
 71 
 
 — 
 
 137 
 
 Comprehensive income (loss) 
 
 $ 
 ( 37,349 
 ) 
 
 $ 
 8,853 
 
 $ 
 ( 70,999 
 ) 
 
 $ 
 234,706 
 
 Weighted average common shares outstanding (basic) 
 
 164,382 
 
 164,284 
 
 164,376 
 
 164,281 
 
 Weighted average common shares outstanding (diluted) 
 
 164,382 
 
 164,326 
 
 164,376 
 
 164,324 
 
 Net income (loss) per common share (basic and diluted) 
 
 $ 
 ( 0.23 
 ) 
 
 $ 
 0.05 
 
 $ 
 ( 0.43 
 ) 
 
 $ 
 1.43 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements. 
 
 4 

 Table of Contents 

 SERVICE PROPERTIES TRUST 
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
 (unaudited) (in thousands, except share data) 
 
 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 
 164,563,034 
 
 $ 
 1,646 
 
 $ 
 ( 5,534,942 
 ) 
 
 $ 
 4,547,529 
 
 $ 
 3,491,645 
 
 $ 
 — 
 
 $ 
 2,505,878 
 
 Net loss 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 33,650 
 ) 
 
 — 
 
 ( 33,650 
 ) 
 
 Common share grants 
 6,000 
 
 — 
 
 — 
 
 590 
 
 — 
 
 — 
 
 590 
 
 Common share repurchases 
 ( 2,637 
 ) 
 
 — 
 
 — 
 
 ( 43 
 ) 
 
 — 
 
 — 
 
 ( 43 
 ) 
 
 Distributions 
 — 
 
 — 
 
 ( 90,509 
 ) 
 
 — 
 
 — 
 
 — 
 
 ( 90,509 
 ) 
 
 Balance at March 31, 2020 
 164,566,397 
 
 $ 
 1,646 
 
 $ 
 ( 5,625,451 
 ) 
 
 $ 
 4,548,076 
 
 $ 
 3,457,995 
 
 $ 
 — 
 
 $ 
 2,382,266 
 
 Net loss 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 37,349 
 ) 
 
 — 
 
 ( 37,349 
 ) 
 
 Common share grants 
 35,000 
 
 — 
 
 — 
 
 831 
 
 — 
 
 — 
 
 831 
 
 Common share repurchases and forfeitures 
 ( 3,808 
 ) 
 
 — 
 
 — 
 
 ( 27 
 ) 
 
 — 
 
 — 
 
 ( 27 
 ) 
 
 Distributions 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Balance at June 30, 2020 
 164,597,589 
 
 $ 
 1,646 
 
 $ 
 ( 5,625,451 
 ) 
 
 $ 
 4,548,880 
 
 $ 
 3,420,646 
 
 $ 
 — 
 
 $ 
 2,345,721 
 
 Balance at December 31, 2018 
 164,441,709 
 
 $ 
 1,644 
 
 $ 
 ( 5,181,323 
 ) 
 
 $ 
 4,545,481 
 
 $ 
 3,231,895 
 
 $ 
 ( 266 
 ) 
 
 $ 
 2,597,431 
 
 Net income 
 — 
 
 — 
 
 — 
 
 — 
 
 225,787 
 
 — 
 
 225,787 
 
 Equity interest in investee’s unrealized gains 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 66 
 
 66 
 
 Common share grants 
 — 
 
 — 
 
 — 
 
 436 
 
 — 
 
 — 
 
 436 
 
 Distributions 
 — 
 
 — 
 
 ( 87,154 
 ) 
 
 — 
 
 — 
 
 — 
 
 ( 87,154 
 ) 
 
 Balance at March 31, 2019 
 164,441,709 
 
 $ 
 1,644 
 
 $ 
 ( 5,268,477 
 ) 
 
 $ 
 4,545,917 
 
 $ 
 3,457,682 
 
 $ 
 ( 200 
 ) 
 
 $ 
 2,736,566 
 
 Net income 
 — 
 
 — 
 
 — 
 
 — 
 
 8,782 
 
 — 
 
 8,782 
 
 Equity interest in investee’s unrealized gains 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 71 
 
 71 
 
 Common share grants 
 15,000 
 
 1 
 
 — 
 
 868 
 
 — 
 
 — 
 
 869 
 
 Common share repurchases 
 ( 2,172 
 ) 
 
 — 
 
 — 
 
 ( 48 
 ) 
 
 — 
 
 — 
 
 ( 48 
 ) 
 
 Distributions 
 — 
 
 — 
 
 ( 88,798 
 ) 
 
 — 
 
 — 
 
 — 
 
 ( 88,798 
 ) 
 
 Balance at June 30, 2019 
 164,454,537 
 
 $ 
 1,645 
 
 $ 
 ( 5,357,275 
 ) 
 
 $ 
 4,546,737 
 
 $ 
 3,466,464 
 
 $ 
 ( 129 
 ) 
 
 $ 
 2,657,442 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements. 
 
 5 

 Table of Contents 

 SERVICE PROPERTIES TRUST 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (Unaudited) 
 (in thousands) 
 
 For the Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 Cash flows from operating activities: 
 
 Net income (loss) 
 
 $ 
 ( 70,999 
 ) 
 
 $ 
 234,569 
 
 Adjustments to reconcile net income (loss) to cash provided by operating activities: 
 
 Depreciation and amortization 
 
 255,353 
 
 198,561 
 
 Amortization of debt issuance costs and debt discounts and premiums as interest 
 
 6,774 
 
 5,140 
 
 Straight-line rental income 
 
 2,669 
 
 4,322 
 
 Security deposits utilized 
 
 ( 100,170 
 ) 
 
 ( 9,179 
 ) 
 
 Loss on early extinguishment of debt 
 
 6,970 
 
 — 
 
 Loss on asset impairment 
 
 45,254 
 
 — 
 
 Unrealized (gains) and losses on equity securities, net 
 
 1,197 
 
 39,811 
 
 Equity in (earnings) losses of an investee 
 
 2,936 
 
 ( 534 
 ) 
 
 (Gain) loss on sale of real estate 
 
 9,764 
 
 ( 159,535 
 ) 
 
 Gain on insurance settlement 
 
 ( 62,386 
 ) 
 
 — 
 
 Deferred income taxes 
 
 15,650 
 
 — 
 
 Other non-cash (income) expense, net 
 
 ( 1,919 
 ) 
 
 ( 207 
 ) 
 
 Changes in assets and liabilities: 
 
 Due from related persons 
 
 1,070 
 
 3,389 
 
 Other assets 
 
 ( 69,351 
 ) 
 
 ( 21,158 
 ) 
 
 Accounts payable and other liabilities 
 
 7,858 
 
 ( 388 
 ) 
 
 Due to related persons 
 
 ( 1,873 
 ) 
 
 ( 54,893 
 ) 
 
 Net cash provided by operating activities 
 
 48,797 
 
 239,898 
 
 Cash flows from investing activities: 
 
 Real estate acquisitions and deposits 
 
 ( 7,090 
 ) 
 
 ( 175,146 
 ) 
 
 Real estate improvements 
 
 ( 45,858 
 ) 
 
 ( 37,189 
 ) 
 
 Hotel managers’ purchases with restricted cash 
 
 ( 95,744 
 ) 
 
 ( 88,150 
 ) 
 
 Hotel manager’s deposit (withdrawal) of insurance proceeds into restricted cash 
 
 15,000 
 
 ( 7,184 
 ) 
 
 Net proceeds from sale of real estate 
 
 63,960 
 
 308,200 
 
 Investment in Sonesta 
 
 ( 5,314 
 ) 
 
 — 
 
 Distributions in excess of earnings from Affiliates Insurance Company 
 
 286 
 
 — 
 
 Net cash (used in) provided by investing activities 
 
 ( 74,760 
 ) 
 
 531 
 
 Cash flows from financing activities: 
 
 Proceeds from issuance of senior unsecured notes, after discounts and premiums 
 
 800,000 
 
 — 
 
 Repurchase of senior unsecured notes 
 
 ( 355,971 
 ) 
 
 — 
 
 Borrowings under unsecured revolving credit facility 
 
 656,000 
 
 121,000 
 
 Repayments of unsecured revolving credit facility 
 
 ( 999,873 
 ) 
 
 ( 208,000 
 ) 
 
 Deferred financing costs 
 
 ( 15,015 
 ) 
 
 — 
 
 Repurchase of common shares 
 
 ( 70 
 ) 
 
 — 
 
 Distributions to common shareholders 
 
 ( 90,509 
 ) 
 
 ( 175,952 
 ) 
 
 Net cash used in financing activities 
 
 ( 5,438 
 ) 
 
 ( 262,952 
 ) 
 
 Decrease in cash and cash equivalents and restricted cash 
 
 ( 31,401 
 ) 
 
 ( 22,523 
 ) 
 
 Cash and cash equivalents and restricted cash at beginning of period 
 
 81,259 
 
 76,003 
 
 Cash and cash equivalents and restricted cash at end of period 
 
 $ 
 49,858 
 
 $ 
 53,480 
 
 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 
 
 $ 
 20,206 
 
 $ 
 15,688 
 
 Restricted cash 
 
 29,652 
 
 37,792 
 
 Total cash and cash equivalents and restricted cash 
 
 $ 
 49,858 
 
 $ 
 53,480 
 
 6 

 Table of Contents 

 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 
 
 $ 
 — 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements. 
 
 7 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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. 
 
 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 , 
 
 8 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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: 
 
 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 
 
 164,382 
 
 164,284 
 
 164,376 
 
 164,281 
 
 Effect of dilutive securities: Unvested share awards 
 
 — 
 
 42 
 
 — 
 
 43 
 
 Weighted average common shares for diluted earnings per share 
 
 164,382 
 
 164,326 
 
 164,376 
 
 164,324 
 
 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. 
 
 Acquisition Date 
 
 Location 
 
 Purchase Price 
 
 Land 
 
 Building and Improvements 
 
 Furniture, Fixtures and Equipment 
 
 Intangible Assets / Liabilities, net 
 
 3/12/2020 
 
 Various (1) 
 
 $ 
 7,071 
 
 $ 
 880 
 
 $ 
 5,363 
 
 $ 
 — 
 
 $ 
 828 
 
 9 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 (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. 
 
 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. 
 
 Date of Sale 
 
 Number of Properties 
 
 Location 
 
 Tenant 
 
 Square Feet 
 
 Gross Sales Price 
 
 1/28/2020 
 
 1 
 
 Gothenburg, NE 
 
 Vacant 
 
 31,978 
 
 $ 
 585 
 
 2/6/2020 
 
 1 
 
 Rochester, MN 
 
 Vacant 
 
 90,503 
 
 2,600 
 
 2/13/2020 
 
 1 
 
 Ainsworth, NE 
 
 Vacant 
 
 32,901 
 
 775 
 
 2/14/2020 
 
 1 
 
 Dekalb, IL 
 
 Vacant 
 
 5,052 
 
 1,050 
 
 3/2/2020 
 
 1 
 
 Eau Claire, MI 
 
 HOM Furniture, Inc. (1) 
 
 98,824 
 
 2,600 
 
 3/28/2020 
 
 1 
 
 Stillwater, OK 
 
 Vacant 
 
 33,018 
 
 400 
 
 5/26/2020 
 
 1 
 
 Pawtucket, RI 
 
 Vacant 
 
 22,027 
 
 1,610 
 
 5/28/2020 
 
 1 
 
 Canton, MA 
 
 Destination XL Group, Inc. (2) 
 
 755,992 
 
 51,000 
 
 5/28/2020 
 
 1 
 
 Phoenix, AZ 
 
 Vacant 
 
 29,434 
 
 2,900 
 
 6/25/2020 
 
 1 
 
 Bellefontaine, OH 
 
 Vacant 
 
 2,267 
 
 440 
 
 1,101,996 
 
 $ 
 63,960 
 
 (1) 
 The HOM Furniture, Inc. lease was scheduled to expire on April 30, 2020 and required annual minimum rent of $ 817 . 
 
 (2) 
 The Destination XL Group, Inc. lease was scheduled to expire on January 31, 2026 and required an annual minimum rent of $ 5,221 . 
 
 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. 
 
 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. 
 
 10 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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 no t 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. 
 
 11 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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: 
 
 • 
 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 required 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 our 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 that Sonesta then managed and the annual minimum returns due for these hotels were reduced from $ 99,013 to $ 69,013 as of that date; 
 
 • 
 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; 
 
 12 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 • 
 We and Sonesta modified our then existing Sonesta agreement and pooling agreement so that 5 % of the hotel 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 flows after payment of the annual minimum returns due to us under the 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 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. 
 
 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. 
 
 13 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 14 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 15 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 16 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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 . 
 
 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, 
 
 17 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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 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 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 $ 0.01 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. 
 
 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. 
 
 18 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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. 
 
 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. 
 
 19 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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. 
 
 20 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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. 
 
 21 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 For the Three Months Ended June 30, 2020 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Revenues: 
 
 Hotel operating revenues 
 
 $ 
 117,356 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 117,356 
 
 Rental income 
 
 1,992 
 
 95,592 
 
 — 
 
 97,584 
 
 FF&E reserve income 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Total revenues 
 
 119,348 
 
 95,592 
 
 — 
 
 214,940 
 
 Expenses: 
 
 Hotel operating expenses 
 
 46,957 
 
 — 
 
 — 
 
 46,957 
 
 Other operating expenses 
 
 — 
 
 3,565 
 
 — 
 
 3,565 
 
 Depreciation and amortization 
 
 67,898 
 
 59,529 
 
 — 
 
 127,427 
 
 General and administrative 
 
 — 
 
 — 
 
 11,302 
 
 11,302 
 
 Loss on asset impairment 
 
 22,361 
 
 6,153 
 
 — 
 
 28,514 
 
 Total expenses 
 
 137,216 
 
 69,247 
 
 11,302 
 
 217,765 
 
 Loss on sale of real estate 
 
 — 
 
 ( 2,853 
 ) 
 
 — 
 
 ( 2,853 
 ) 
 
 Gain on insurance settlement 
 
 62,386 
 
 — 
 
 — 
 
 62,386 
 
 Unrealized gain on equity securities 
 
 — 
 
 — 
 
 3,848 
 
 3,848 
 
 Interest income 
 
 15 
 
 — 
 
 — 
 
 15 
 
 Interest expense 
 
 — 
 
 — 
 
 ( 72,072 
 ) 
 
 ( 72,072 
 ) 
 
 Loss on early extinguishment of debt 
 
 — 
 
 — 
 
 ( 6,970 
 ) 
 
 ( 6,970 
 ) 
 
 Income (loss) before income taxes and equity in earnings of an investee 
 
 44,533 
 
 23,492 
 
 ( 86,496 
 ) 
 
 ( 18,471 
 ) 
 
 Income tax expense 
 
 — 
 
 — 
 
 ( 16,660 
 ) 
 
 ( 16,660 
 ) 
 
 Equity in losses of an investee 
 
 ( 2,218 
 ) 
 
 — 
 
 — 
 
 ( 2,218 
 ) 
 
 Net income (loss) 
 
 $ 
 42,315 
 
 $ 
 23,492 
 
 $ 
 ( 103,156 
 ) 
 
 $ 
 ( 37,349 
 ) 
 
 For the Six Months Ended June 30, 2020 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Revenues: 
 
 Hotel operating revenues 
 
 $ 
 500,859 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 500,859 
 
 Rental income 
 
 2,372 
 
 195,284 
 
 — 
 
 197,656 
 
 FF&E reserve income 
 
 201 
 
 — 
 
 — 
 
 201 
 
 Total revenues 
 
 503,432 
 
 195,284 
 
 — 
 
 698,716 
 
 Expenses: 
 
 Hotel operating expenses 
 
 318,105 
 
 — 
 
 — 
 
 318,105 
 
 Other operating expenses 
 
 — 
 
 7,324 
 
 — 
 
 7,324 
 
 Depreciation and amortization 
 
 135,438 
 
 119,915 
 
 — 
 
 255,353 
 
 General and administrative 
 
 — 
 
 — 
 
 25,326 
 
 25,326 
 
 Loss on asset impairment 
 
 22,361 
 
 22,893 
 
 — 
 
 45,254 
 
 Total expenses 
 
 475,904 
 
 150,132 
 
 25,326 
 
 651,362 
 
 Loss on sale of real estate 
 
 — 
 
 ( 9,764 
 ) 
 
 — 
 
 ( 9,764 
 ) 
 
 Gain on insurance settlement 
 
 62,386 
 
 — 
 
 — 
 
 62,386 
 
 Unrealized losses on equity securities 
 
 — 
 
 — 
 
 ( 1,197 
 ) 
 
 ( 1,197 
 ) 
 
 Interest income 
 
 162 
 
 — 
 
 115 
 
 277 
 
 Interest expense 
 
 — 
 
 — 
 
 ( 143,147 
 ) 
 
 ( 143,147 
 ) 
 
 Loss on early extinguishment of debt 
 
 — 
 
 — 
 
 ( 6,970 
 ) 
 
 ( 6,970 
 ) 
 
 Income (loss) before income taxes and equity in earnings of an investee 
 
 90,076 
 
 35,388 
 
 ( 176,525 
 ) 
 
 ( 51,061 
 ) 
 
 Income tax expense 
 
 — 
 
 — 
 
 ( 17,002 
 ) 
 
 ( 17,002 
 ) 
 
 Equity in losses of an investee 
 
 ( 2,936 
 ) 
 
 — 
 
 — 
 
 ( 2,936 
 ) 
 
 Net income (loss) 
 
 $ 
 87,140 
 
 $ 
 35,388 
 
 $ 
 ( 193,527 
 ) 
 
 $ 
 ( 70,999 
 ) 
 
 As of June 30, 2020 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Total assets 
 
 $ 
 4,972,731 
 
 $ 
 3,869,686 
 
 $ 
 37,128 
 
 $ 
 8,879,545 
 
 22 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 For the Three Months Ended June 30, 2019 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Revenues: 
 
 Hotel operating revenues 
 
 $ 
 541,215 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 541,215 
 
 Rental income 
 
 5,074 
 
 63,143 
 
 — 
 
 68,217 
 
 FF&E reserve income 
 
 1,130 
 
 — 
 
 — 
 
 1,130 
 
 Total revenues 
 
 547,419 
 
 63,143 
 
 — 
 
 610,562 
 
 Expenses: 
 
 Hotel operating expenses 
 
 380,431 
 
 — 
 
 — 
 
 380,431 
 
 Other operating expenses 
 
 — 
 
 1,272 
 
 — 
 
 1,272 
 
 Depreciation and amortization 
 
 66,900 
 
 32,296 
 
 — 
 
 99,196 
 
 General and administrative 
 
 — 
 
 — 
 
 12,207 
 
 12,207 
 
 Total expenses 
 
 447,331 
 
 33,568 
 
 12,207 
 
 493,106 
 
 Dividend income 
 
 — 
 
 — 
 
 876 
 
 876 
 
 Unrealized loss on equity securities 
 
 — 
 
 — 
 
 ( 60,788 
 ) 
 
 ( 60,788 
 ) 
 
 Interest income 
 
 216 
 
 — 
 
 233 
 
 449 
 
 Interest expense 
 
 — 
 
 — 
 
 ( 49,601 
 ) 
 
 ( 49,601 
 ) 
 
 Income (loss) before income taxes and equity in earnings of an investee 
 
 100,304 
 
 29,575 
 
 ( 121,487 
 ) 
 
 8,392 
 
 Income tax benefit 
 
 — 
 
 — 
 
 260 
 
 260 
 
 Equity in earnings of an investee 
 
 — 
 
 — 
 
 130 
 
 130 
 
 Net income (loss) 
 
 $ 
 100,304 
 
 $ 
 29,575 
 
 $ 
 ( 121,097 
 ) 
 
 $ 
 8,782 
 
 For the Six Months Ended June 30, 2019 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Revenues: 
 
 Hotel operating revenues 
 
 $ 
 996,078 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 996,078 
 
 Rental income 
 
 10,148 
 
 126,742 
 
 — 
 
 136,890 
 
 FF&E reserve income 
 
 2,502 
 
 — 
 
 — 
 
 2,502 
 
 Total revenues 
 
 1,008,728 
 
 126,742 
 
 — 
 
 1,135,470 
 
 Expenses: 
 
 Hotel operating expenses 
 
 698,116 
 
 — 
 
 — 
 
 698,116 
 
 Other operating expenses 
 
 — 
 
 2,712 
 
 — 
 
 2,712 
 
 Depreciation and amortization 
 
 133,365 
 
 65,196 
 
 — 
 
 198,561 
 
 General and administrative 
 
 — 
 
 — 
 
 24,442 
 
 24,442 
 
 Total expenses 
 
 831,481 
 
 67,908 
 
 24,442 
 
 923,831 
 
 Gain on sale of real estate 
 
 — 
 
 159,535 
 
 — 
 
 159,535 
 
 Dividend income 
 
 — 
 
 — 
 
 1,752 
 
 1,752 
 
 Unrealized loss on equity securities 
 
 — 
 
 — 
 
 ( 39,811 
 ) 
 
 ( 39,811 
 ) 
 
 Interest income 
 
 427 
 
 — 
 
 659 
 
 1,086 
 
 Interest expense 
 
 — 
 
 — 
 
 ( 99,367 
 ) 
 
 ( 99,367 
 ) 
 
 Income (loss) before income taxes and equity in earnings of an investee 
 
 177,674 
 
 218,369 
 
 ( 161,209 
 ) 
 
 234,834 
 
 Income tax expense 
 
 — 
 
 — 
 
 ( 799 
 ) 
 
 ( 799 
 ) 
 
 Equity in earnings of an investee 
 
 — 
 
 — 
 
 534 
 
 534 
 
 Net income (loss) 
 
 $ 
 177,674 
 
 $ 
 218,369 
 
 $ 
 ( 161,474 
 ) 
 
 $ 
 234,569 
 
 As of December 31, 2019 
 
 Hotels 
 
 Net Lease 
 
 Corporate 
 
 Consolidated 
 
 Total assets 
 
 $ 
 4,866,549 
 
 $ 
 4,042,831 
 
 $ 
 124,587 
 
 $ 
 9,033,967 
 
 23 

 Table of Contents 
 SERVICE PROPERTIES TRUST 
 Notes to Condensed Consolidated Financial Statements 
 (dollars in thousands, except share data) 
 (Unaudited) 
 
 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. 
 
 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) 
 
 $ 
 10,534 
 
 $ 
 10,534 
 
 $ 
 — 
 
 $ 
 — 
 
 Non-recurring Fair Value Measurement Assets: 
 
 Assets of properties held for sale (2) 
 
 $ 
 152,367 
 
 $ 
 — 
 
 $ 
 156,610 
 
 $ 
 — 
 
 (1) 
 Our 684,000 common shares of TA, which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $ 17,407 as of June 30, 2020 . During the three months ended June 30, 2020 , we recorded unrealized gains of $ 3,848 , during the six months ended June 30, 2020 , we recorded unrealized losses of $ 1,198 and during the three and six months ended June 30, 2019 , we recorded unrealized losses of $ 1,676 and $ 479 , respectively, to adjust the carrying value of our investment in TA shares to its fair value. 
 
 (2) 
 As of June 30, 2020 , we owned 25 hotels and nine net lease properties located in eight states classified as held for sale with an aggregate net carrying value of $ 152,367 before adjusting for estimated costs of sale of $ 4,243 . These properties are recorded at their estimated fair value less costs to sell based on the sales prices under purchase agreements with third-parties (Level 2 inputs as defined in the fair value hierarchy under GAAP). We recorded a $ 28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 21 of these properties to its estimated fair value less costs to sell. 
 
 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: 
 
 June 30, 2020 
 
 December 31, 2019 
 
 Carrying Value (1) 
 
 Fair Value 
 
 Carrying Value (1) 
 
 Fair Value 
 
 Senior Unsecured Notes, due 2021 at 4.25% 
 
 $ 
 49,887 
 
 $ 
 49,925 
 
 $ 
 398,379 
 
 $ 
 406,838 
 
 Senior Unsecured Notes, due 2022 at 5.00% 
 
 497,427 
 
 490,115 
 
 496,821 
 
 526,500 
 
 Senior Unsecured Notes, due 2023 at 4.50% 
 
 499,514 
 
 480,255 
 
 499,432 
 
 520,478 
 
 Senior Unsecured Notes, due 2024 at 4.65% 
 
 348,497 
 
 317,597 
 
 348,295 
 
 364,277 
 
 Senior Unsecured Notes, due 2024 at 4.35% 
 
 818,810 
 
 748,584 
 
 818,075 
 
 848,847 
 
 Senior Unsecured Notes, due 2025 at 4.50% 
 
 346,774 
 
 318,931 
 
 346,431 
 
 361,783 
 
 Senior Unsecured Notes, due 2025 at 7.50% 
 
 788,098 
 
 847,704 
 
 — 
 
 — 
 
 Senior Unsecured Notes, due 2026 at 5.25% 
 
 343,649 
 
 319,519 
 
 343,083 
 
 369,185 
 
 Senior Unsecured Notes, due 2026 at 4.75% 
 
 446,210 
 
 402,597 
 
 445,905 
 
 464,315 
 
 Senior Unsecured Notes, due 2027 at 4.95% 
 
 395,027 
 
 351,598 
 
 394,649 
 
 414,012 
 
 Senior Unsecured Notes, due 2028 at 3.95% 
 
 391,333 
 
 326,966 
 
 390,759 
 
 393,940 
 
 Senior Unsecured Notes, due 2029 at 4.95% 
 
 417,703 
 
 360,906 
 
 417,307 
 
 434,248 
 
 Senior Unsecured Notes, due 2030 at 4.375% 
 
 389,089 
 
 327,906 
 
 388,522 
 
 394,788 
 
 Total financial liabilities 
 
 $ 
 5,732,018 
 
 $ 
 5,342,603 
 
 $ 
 5,287,658 
 
 $ 
 5,499,211 
 
 (1) 
 Carrying value includes unamortized discounts and premiums and issuance costs. 
 
 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). 
 
 24 

 Table of Contents
Service Properties Trust 10-Q

Item 1. Financial Statements
