What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-05 compared with 2021-05-10 · 261 added, 189 removed, 387 unchanged (54% of the section changed)

23 unchanged sentences

Total liabilities 7,601,084 6,584,529

Commitments and contingencies

Shareholders’ equity:

1 unchanged sentence

200,000,000 shares authorized;

164,823,833 shares issued and outstanding

164,857,754 and 164,823,833 , shares issued and outstanding, respectively

Additional paid in capital

13 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Hotel operating revenues $ 280,135 $ 117,356 $ 449,088 $ 500,859

5 unchanged sentences

General and administrative 13,952 11,302 26,609 25,326

Transaction related costs 6,151 — 25,785 —

Loss on asset impairment 899 28,514 2,110 45,254

1 unchanged sentence

Other operating income:

Loss on sale of real estate ( 9 ) ( 6,911 )

Unrealized losses on equity securities, net ( 6,481 ) ( 5,045 )

Gain (loss) on sale of real estate, net 10,849 ( 2,853 ) 10,840 ( 9,764 )

Gain on insurance settlement — 62,386 — 62,386

Unrealized gain (losses) on equity securities, net 2,500 3,848 ( 3,981 ) ( 1,197 )

Interest income 225 15 282 277

1 unchanged sentence

( 91,378 ) ( 72,072 ) ( 180,769 ) ( 143,147 )

Loss before income taxes and equity in losses of an investee ( 191,294 ) ( 32,590 )

Loss on early extinguishment of debt — ( 6,970 ) — ( 6,970 )

Loss before income taxes and equity in earnings (losses) of an investee ( 91,634 ) ( 18,471 ) ( 282,928 ) ( 51,061 )

Income tax expense ( 211 ) ( 16,660 ) ( 1,064 ) ( 17,002 )

Equity in losses of an investee ( 2,843 ) ( 718 )

Equity in earnings (losses) of an investee 735 ( 2,218 ) ( 2,108 ) ( 2,936 )

Net loss ( 91,110 ) ( 37,349 ) ( 286,100 ) ( 70,999 )

Weighted average common shares outstanding (basic) 164,498 164,370

Weighted average common shares outstanding (diluted) 164,498 164,370

Weighted average common shares outstanding (basic and diluted) 164,506 164,382 164,502 164,376

Net loss per common share (basic and diluted) $ ( 0.55 ) $ ( 0.23 ) $ ( 1.74 ) $ ( 0.43 )

16 unchanged sentences

Balance at March 31, 2021 164,823,833 $ 1,648 $ ( 5,630,394 ) $ 4,550,765 $ 2,985,273 $ ( 760 ) $ 1,906,532

Net loss — — — — ( 91,110 ) — ( 91,110 )

Share grants 49,000 1 — 1,066 — — 1,067

Share repurchases ( 15,079 ) — — ( 190 ) — — ( 190 )

Distributions — — ( 1,648 ) — — — ( 1,648 )

Balance at June 30, 2021 164,857,754 $ 1,649 $ ( 5,632,042 ) $ 4,551,641 $ 2,894,163 $ ( 760 ) $ 1,814,651

Balance at December 31, 2019 164,563,034 $ 1,646 $ ( 5,534,942 ) $ 4,547,529 $ 3,491,645 $ — $ 2,505,878

4 unchanged sentences

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 )

Share grants 35,000 — — 831 — — 831

Share repurchases ( 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

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

2 unchanged sentences

(dollars in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash flows from operating activities:

5 unchanged sentences

Security deposits utilized — ( 100,170 )

Loss on early extinguishment of debt — 6,970

Loss on asset impairment 2,110 45,254

1 unchanged sentence

Equity in losses of an investee 2,108 2,936

Loss on sale of real estate 9 6,911

(Gain) loss on sale of real estate ( 10,840 ) 9,764

Gain on insurance settlement — ( 62,386 )

Deferred income taxes — 15,650

Other non-cash income, net ( 1,363 ) ( 1,919 )

12 unchanged sentences

Investment in Sonesta ( 25,443 ) ( 5,314 )

Distributions in excess of earnings from Affiliates Insurance Company — 286

Net cash used in investing activities ( 65,218 ) ( 74,760 )

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 revolving credit facility 984,027 656,000

4 unchanged sentences

Net cash provided by (used in) financing activities 911,593 ( 5,438 )

Increase in cash and cash equivalents and restricted cash 788,095 18,496

Increase (decrease) in cash and cash equivalents and restricted cash 825,169 ( 31,401 )

Cash and cash equivalents and restricted cash at beginning of period 91,456 81,259

17 unchanged sentences

Service Properties Trust, or we, us or our, is a real estate investment trust, or REIT, organized on February 7, 1995 under the laws of the State of Maryland, which invests in hotels and net lease service oriented retail properties.

At March 31, 2021, we owned, directly and through subsidiaries, 310 hotels and 798 net lease properties.

At March 31, 2021, 305 of our 310 hotels were operated by subsidiaries of the following companies:

At June 30, 2021, we owned, directly and through our subsidiaries, 304 hotels and 796 net lease properties.

At June 30, 2021, all 304 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 261 hotels), Hyatt Hotels Corporation, or Hyatt ( 17 hotels), Radisson Hospitality, Inc., or Radisson ( nine hotels), Marriott International, Inc., or Marriott ( 16 hotels), and InterContinental Hotels Group, plc, or IHG ( one hotel).

We have entered into an agreement to sell five of our 310 hotels and have entered into a short term lease of these properties with the buyer in anticipation of the sale.

At March 31, 2021, we owned 798 net lease properties with 168 tenants, including 179 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant.

At June 30, 2021, we owned 796 net lease properties with 171 tenants, including 179 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant.

Hereinafter, these companies are sometimes referred to as managers and/or tenants, or collectively, operators.

Impact of COVID-19

The lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the novel coronavirus, or COVID-19, global pandemic, the federal, state and local government mandates intended to contain and mitigate the spread of COVID-19 and market reactions to the pandemic.

These matters continue to have a significant negative impact on our results of operations, financial position and cash flow.

Our results of operations and cash flows from our hotels are heavily dependent on our operators’ ability to generate returns to us.

Although leisure demand at our hotels has improved through the first quarter of 2021 when compared to 2020 levels, business transient and group demand have been limited and, consistent with trends throughout the U.S.

lodging industry, continue to lag in recovery.

Although overall lodging activity continues to improve over levels seen since the beginning of the pandemic, and our current expectation is that lodging demand may improve in the second half of 2021 at a more meaningful pace than experienced to date, we expect the recovery in the lodging industry to historical levels may take several years.

We cannot predict with certainty when business levels may return to normalized historical levels after the effects of the pandemic subside.

We currently expect that the recovery with respect to business transient and group business will be gradual and likely inconsistent.

Factors such as public health, availability and effectiveness of COVID-19 vaccines, changes in business practices with regard to travel and the geopolitical environment may impact the timing, extent and pace of such recovery.

In addition, consumer confidence and leisure demand will continue to be affected by unemployment, perceptions of the safety of returning to normal activities and broader macroeconomic trends.

Since March 2020, the lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the novel coronavirus, or COVID-19, global pandemic along with the federal, state and local government mandates intended to contain and mitigate the spread of COVID-19 and market reactions to the pandemic.

The effects of COVID-19 continue to have a significant negative impact on our results of operations, financial position and cash flow.

Although lodging demand has improved through the second quarter of 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical levels.

Under the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

In applying the accounting guidance, we considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our unconditional obligations due over the next 12 months.

As of March 31, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we meet the required covenant level.

On January 19, 2021, we borrowed $ 972,793 under our revolving credit facility as a precautionary measure to preserve financial flexibility and are currently fully drawn under our revolving credit facility.

Based on our cash on hand, the cash flows we expect to receive from our net lease portfolio, improving lodging trends and asset dispositions we expect to complete, we believe we will have sufficient liquidity to meet our obligations for at least the next twelve months.

As of June 30, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we meet the required covenant level.

Based on our cash on hand, the cash flows we expect to receive from our operators, improving lodging trends and asset dispositions we expect to complete, we believe we will have sufficient liquidity to meet our obligations for at least the next twelve months.

Basis of Presentation

8 unchanged sentences

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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.

1 unchanged sentence

Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets, impairment of real estate and related intangibles.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 $ 140,211 and $ 118,862 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 91,220 and $ 70,240 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of amounts payable to certain of our hotel managers.

The assets of our TRSs were $ 151,773 and $ 118,862 as of June 30, 2021 and December 31, 2020, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 80,888 and $ 70,240 as of June 30, 2021 and December 31, 2020, respectively, and consist primarily of 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.

4 unchanged sentences

We recognize rental income from operating leases on a straight line basis over the term of the lease agreements.

We reduced rental income by $ 1,883 and $ 3,543 during the three months ended March 31, 2021 and 2020, respectively, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight line basis.

We reduced rental income by $ 299 for the three months ended June 30, 2021, increased rental income by $ 875 for the three months ended June 30, 2020 and reduced rental income by $ 2,181 and $ 2,669 for the six months ended June 30, 2021 and 2020, respectively, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight line basis.

See Notes 5 and 9 for further information regarding our TA leases.

Due from related persons includes $ 30,597 and $ 33,902 and other assets, net, includes $ 17,660 and $ 16,264 of straight line rent receivables at March 31, 2021 and December 31, 2020, respectively.

Due from related persons includes $ 27,379 and $ 33,902 and other assets, net, includes $ 22,594 and $ 16,264 of straight line rent receivables at June 30, 2021 and December 31, 2020, 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 $ 1,386 and $ 725 for the three months ended March 31, 2021 and 2020, respectively.

We had deferred estimated percentage rent 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.

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 March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(in thousands)

4 unchanged sentences

Real Estate Properties

At March 31, 2021, we owned 310 hotels with an aggregate of 49,015 rooms or suites and 798 service-oriented retail properties with an aggregate of 13,452,608 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 $ 11,204,220 , including $ 13,805 classified as held for sale as of March 31, 2021.

At June 30, 2021, we owned 304 hotels with an aggregate of 48,439 rooms or suites and 796 service-oriented retail properties with an aggregate of 13,440,784 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 $ 11,152,330 , including $ 4,259 classified as held for sale as of June 30, 2021.

Capital expenditures made at certain of our properties were $ 53,431 and $ 78,500 during the six months ended June 30, 2021 and 2020, respectively.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

During the three months ended March 31, 2021, we funded $ 29,037 for improvements to certain of our properties.

On March 9, 2021, we acquired a land parcel adjacent to a property we own in Nashville, TN for a purchase price of $ 7,709 , including acquisition related costs.

We accounted for this transaction as an acquisition of assets.

We sold one net lease property with 2,797 square feet for $ 375 , excluding closing costs, during the three months ended March 31, 2021.

As a result of this sale, we recorded a net loss on sale of real estate of $ 9 during the three months ended March 31, 2021.

In April 2021, we sold one hotel with 146 rooms that was subject to a ground lease pursuant to a purchase option exercised by the third party lessor for $ 9,753 , excluding closing costs, and one net lease property with 32,130 square feet for $ 1,206 , excluding closing costs.

We have entered into an agreement to sell five hotels with an aggregate of 430 rooms in four states and an aggregate carrying value of $ 10,699 for an aggregate sales price of $ 22,263 , excluding closing costs.

We have also entered into agreements to sell two net lease properties with an aggregate of 35,330 square feet and an aggregate carrying value of $ 1,439 for an aggregate sales price of $ 1,581 , excluding closing costs.

We currently expect these sales to be completed by the end of the second quarter of 2021.

However, these sales are subject to conditions and we cannot be sure that we will complete these sales or that these sales will not be delayed, or the terms will not change.

As of March 31, 2021, we had five hotels with an aggregate of 430 rooms and an aggregate carrying value of $ 10,699 classified as held for sale and six net lease properties with an aggregate of 45,745 square feet and an aggregate carrying value of $ 3,106 classified as held for sale.

See Notes 5 and 12 for further information on these properties.

During the six months ended June 30, 2021, we sold nine properties for an aggregate sales price of $ 34,051 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift.

As a result, the results of the operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of income (loss).

Date of Sale Number of Properties Location Property Type Rooms/ Square Feet Gross Sales Price Gain/(Loss) on Sale

3/16/2021 1 Chattanooga, TN Net Lease 2,797 $ 375 $ ( 9 )

4/1/2021 1 Jacksonville, FL Hotel 146 9,753 49

4/6/2021 1 Colorado Springs, CO Net Lease 32,130 1,300 ( 10 )

5/20/2021 5 Various Hotel 430 22,263 10,763

6/11/2021 1 Emmitsburg, MD Net Lease 3,114 360 47

9 576 / 38,041

$ 34,051 $ 10,840

We are currently marketing for sale 69 Sonesta branded hotels ( 46 extended stay hotels with 5,404 keys, 19 select service hotels with 2,461 keys and four full service hotels with 1,098 keys) located in 27 states with an aggregate net carrying value of $ 627,302 as of June 30, 2021 .

We expect these sales to be completed by the end of the first quarter of 2022.

We have also entered into agreements to sell four net lease properties with an aggregate of 20,712 square feet and an aggregate carrying value of $ 1,678 for an aggregate sales price of $ 2,165 , excluding closing costs.

We currently expect these sales to be completed by the end of the third quarter of 2021.

As of June 30, 2021, we had eight net lease properties with an aggregate of 31,966 square feet and an aggregate carrying value of $ 4,259 classified as held for sale.

See Note 12 for further information on these properties.

Management Agreements and Leases

As of March 31, 2021, we owned 310 hotels which were included in seven operating agreements and 798 service oriented retail properties net leased to 168 tenants.

As of June 30, 2021, we owned 304 hotels which were included in six operating agreements and 796 service oriented retail properties net leased to 171 tenants.

We do not operate any of our properties.

Hotel agreements

As of March 31, 2021, 305 of our hotels were leased to our TRSs and managed by independent hotel operating companies.

As of March 31, 2021, our hotel properties were managed by separate subsidiaries of Sonesta, Hyatt, Radisson, Marriott and IHG under six agreements.

As of June 30, 2021, all 304 of our hotels were leased to our TRSs and managed by independent hotel operating companies.

As of June 30, 2021, our hotel properties were managed by separate subsidiaries of Sonesta, Hyatt, Radisson, Marriott and IHG under six agreements.

These hotel agreements had initial terms expiring between 2021 and 2037.

5 unchanged sentences

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, payment of certain management fees, payment of our minimum returns, reimbursement of certain advances, funding of our FF&E reserves and replenishment of guarantees.

In the past, some of our managers or tenants or their affiliates provided deposits or guarantees to secure their obligations to pay us.

We have also entered into an agreement to sell five of our hotels and have entered into a short term lease of these properties with the buyer in anticipation of the sale.

Sonesta agreement.

As of March 31, 2021, Sonesta managed 41 of our full-service hotels, 157 extended stay hotels and 58 select service hotels pursuant to management agreements for each of the hotels.

We are also party to pooling agreements that combine certain of our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us.

Our agreements with Sonesta for 53 hotels expire in January 2037, which we refer to as our legacy management and pooling agreements.

As of January 1, 2021, 115 of our hotels were managed by Sonesta under agreements that expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier, which we refer to as our conversion hotel management and pooling agreements or collectively with our legacy agreements, our Sonesta agreement.

Some of our managers or tenants or their affiliates provided deposits or guarantees to secure their obligations to pay us.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

In February and March 2021, we transferred the branding and management of 88 hotels to Sonesta from Marriott.

Sonesta agreement.

As of June 30, 2021, Sonesta managed 41 of our full-service hotels, 157 extended stay hotels and 63 select service hotels pursuant to management agreements for each of the hotels.

Our agreements with Sonesta for 53 hotels expire in January 2037, which we refer to as our legacy management and pooling agreements.

As of June 30, 2021, 208 of our hotels were managed by Sonesta under agreements that expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier, which we refer to as our conversion hotel management and pooling agreements or collectively with our legacy management and pooling agreements, our Sonesta agreement.

In February and March 2021, we transitioned the branding and management of 88 hotels to Sonesta from Marriott and in June 2021 we transitioned the branding and management of five hotels to Sonesta from Hyatt.

We added these hotels to our conversion hotel management and pooling agreements with Sonesta.

Following this transition and rebranding, Sonesta operates 256 of the 310 hotels we currently own, which comprises approximately 52.2 % of our total historical real estate investments as of March 31, 2021.

In January 2021, we received a notice of termination from Hyatt that terminated our management agreement with Hyatt for 22 of our hotels, or our Hyatt agreement, effective as of April 8, 2021, as a result of Hyatt’s guarantee being exhausted.

On April 7, 2021, we and Hyatt agreed to a short term extension of the termination date to May 22, 2021.

We and Hyatt are currently in discussions regarding possible changes to our Hyatt agreement that may result in some or all of the hotels remaining Hyatt managed.

However, if such discussions with Hyatt do not result in a mutually acceptable agreement for Hyatt to continue to manage some or all of these hotels, we expect to transition management of those hotels to Sonesta on or about June 1, 2021.

Following this transfer and rebranding, Sonesta operates 261 of the 304 hotels we currently own, which comprised approximately 52.8 % of our total historical real estate investments as of June 30, 2021.

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 $ 502,494 as of March 31, 2021.

Our fixed annual minimum return under our Sonesta agreement was $ 509,621 as of June 30, 2021.

Our Sonesta agreement further provides that we are paid an additional return equal to 80 % of the 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 net operating cash flow deficits of $ 37,394 and $ 8,146 during the three months ended March 31, 2021 and 2020, respectively.

Our Sonesta hotels generated net operating cash flow of $ 25,198 and a net operating cash flow deficit of $ 17,666 during the three months ended June 30, 2021 and 2020, respectively, and net operating cash flow deficit of $ 12,196 and $ 25,814 for the six months ended June 30, 2021 and 2020, respectively.

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.

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 $ 11,275 and $ 6,779 for the three months ended March 31, 2021 and 2020, respectively.

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 $ 22,046 and $ 2,147 for the three months ended June 30, 2021 and 2020, respectively, and $ 33,321 and $ 8,925 for the six months ended June 30, 2021 and 2020, respectively.

These fees and costs are included in hotel operating expenses in our condensed consolidated statements of income (loss).

In addition, we incurred procurement and construction supervision fees of $ 743 and $ 633 for the three months ended March 31, 2021 and 2020, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

In addition, we incurred procurement and construction supervision fees of $ 643 and $ 270 for the three months ended June 30, 2021 and 2020, respectively, and $ 1,387 and $ 902 for the six months ended June 30, 2021 and 2020, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

Our Sonesta agreement requires us to fund capital expenditures that we approve at our Sonesta hotels.

1 unchanged sentence

Our legacy management agreements do not require FF&E escrow deposits for 39 extended stay hotels.

No FF&E escrow deposits were required during the three months ended March 31, 2021.

We funded $ 21,713 and $ 29,036 for capital expenditures to certain hotels included in our Sonesta agreement during the three months ended March 31, 2021 and 2020, respectively, which resulted in increases in our contractual annual minimum returns of $ 1,737 and $ 2,141 , respectively.

We owed Sonesta $ 41,361 and $ 13,323 for operating losses generated by our Sonesta hotels, capital expenditures, and other reimbursements at March 31, 2021 and 2020, respectively.

No FF&E escrow deposits were required during the three and six months ended June 30, 2021.

We incurred capital expenditures for certain hotels included in our Sonesta agreement of $ 56,452 and $ 40,088 during the six months ended June 30, 2021 and 2020, respectively, which resulted in increases in our contractual annual minimum returns of $ 3,990 and $ 2,934 , respectively.

We owed Sonesta $ 18,433 and $ 7,154 for operating losses generated by our Sonesta hotels, capital expenditures, and other reimbursements at June 30, 2021 and 2020, 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.

We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations.

We had advanced $ 55,360 and $ 41,514 of initial working capital to Sonesta as of March 31, 2021 and December 31, 2020, respectively.

We had advanced $ 55,977 and $ 41,514 of initial working capital to Sonesta as of June 30, 2021 and December 31, 2020, respectively.

These amounts are included in other assets in our condensed consolidated balance sheets.

7 unchanged sentences

We continue to maintain our 34 % ownership in Sonesta after giving effect to this funding.

As of March 31, 2021, our investment in Sonesta had a carrying value of $ 59,246 .

As of June 30, 2021, our investment in Sonesta had a carrying value of $ 59,981 .

This amount is included in other assets, net in our condensed consolidated balance sheets.

1 unchanged sentence

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 the three months ended March 31, 2021.

We recognized losses of $ 2,778 and $ 718 related to our investment in Sonesta for the three months ended March 31, 2021 and 2020, respectively.

These amounts are included in equity in losses of an investee in our condensed consolidated statements of income (loss).

We recorded amortization of the basis difference of $ 65 in each of the three months ended June 30, 2021 and 2020 and $ 130 and $ 65 for the six months ended June 30, 2021 and 2020, respectively.

We recognized income of $ 800 and a loss of $ 2,218 related to our investment in Sonesta for the three months ended June 30, 2021 and 2020, respectively, and losses of $ 1,978 and $ 2,936 for the six months ended June 30, 2021 and 2020, respectively.

These amounts are included in equity in earnings (losses) of an investee in our condensed consolidated statements of income (loss).

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, as a reduction to hotel operating expenses in our condensed consolidated statements of income (loss).

We reduced hotel operating expenses by $ 621 and $ 207 for the three months ended March 31, 2021 and 2020, respectively, for amortization of this liability.

As of March 31, 2021, the unamortized balance of this liability was $ 39,310 .

We reduced hotel operating expenses by $ 621 for each of the three months ended June 30, 2021 and 2020, and $ 1,242 and $ 828 for the six months ended June 30, 2021 and 2020, respectively, for amortization of this liability.

As of June 30, 2021, the unamortized balance of this liability was $ 38,690 .

See Note 9 for further information regarding our relationship, agreements and transactions with Sonesta.

Hyatt agreement.

Our Hyatt agreement was originally scheduled to expire in 2030.

Pursuant to our Hyatt agreement, Hyatt had provided us with a guaranty, which was limited to $ 50,000 .

During the year ended December 31, 2020, we exhausted the remaining limited guaranty available to us to cover shortfalls in the minimum return due to us.

In January 2021, we received a notice of termination from Hyatt that terminated our Hyatt agreement, effective as of April 8, 2021, as a result of Hyatt’s guaranty being exhausted.

On April 7, 2021, we and Hyatt agreed to a short term extension of the termination date to May 22, 2021.

We and Hyatt are currently in discussions regarding possible changes to our Hyatt agreement that may result in some or all of the hotels remaining Hyatt managed.

However, if such discussions do not result in a mutually acceptable agreement for Hyatt to continue to manage some or all of these hotels, we expect to transition management of those hotels to Sonesta on or about June 1, 2021.

We realized returns of $ 1,555 and $ 5,509 during the three months ended March 31, 2021 and 2020, respectively, under our Hyatt agreement.

Any returns we receive from Hyatt are limited to the hotels’ available cash flows, if any, after payment of operating expenses.

On June 7, 2021, we and Hyatt amended our previous agreement for 22 hotels we own, or our Hyatt agreement.

Under the amended agreement, Hyatt will continue to manage 17 of the hotels we own for a 10 year term effective April 1, 2021.

The amended agreement sets our annual minimum return at $ 12,000 and Hyatt provided us with a new $ 30,000 limited guarantee for 75 % of the aggregate annual minimum returns due to us beginning in 2023.

Under the amended agreement, a management fee of 5 % of gross room revenues payable to Hyatt will be an operating cost paid senior to our minimum return.

Hyatt may also earn a 20 % incentive management fee after payment of our annual minimum return and reimbursement of certain advances, if any.

We also agreed to fund approximately $ 50,000 of renovations that are expected to be completed by the end of 2022.

As described above, we transitioned the branding and management of the remaining five hotels to Sonesta in June 2021.

We realized returns of $ 2,311 and $ 5,509 during the three months ended June 30, 2021 and 2020, respectively, and returns of $ 3,867 and $ 11,019 during the six months ended June 30, 2021 and 2020, respectively, under our Hyatt agreement.

Any returns we receive from Hyatt are currently limited to the hotels’ available cash flows, if any, after payment of operating expenses.

During the three months ended June 30, 2021, we expensed $ 3,700 of working capital we previously funded under our Hyatt agreement because the amount is no longer expected to be recoverable.

This amount is included in transaction related costs in our condensed consolidated statement of income (loss).

Radisson agreement .

Our management agreement with Radisson for nine hotels, or our Radisson agreement, which expires in 2037, provides that, as of June 30, 2021, we are to be paid an annual minimum return of $ 20,601 .

We realized minimum returns of $ 4,906 and $ 5,111 during the three months ended June 30, 2021 and 2020, respectively, and $ 10,056 and $ 10,221 during the six months ended June 30, 2021 and 2020, respectively, under our Radisson agreement.

Pursuant to our Radisson agreement, Radisson has provided us with a guaranty, which is limited to $ 47,523 .

During the three and six months ended June 30, 2021, the hotels under our Radisson agreement generated cash flows that were less than the minimum returns due to us for the periods and Radisson made $ 5,306 and $ 13,238 , respectively, of guaranty payments to cover part of the shortfall and the Radisson guaranty was exhausted as of June 30, 2021.

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, reimbursement of our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any.

We and Radisson are currently in discussions regarding possible changes to our Radisson agreement that may result in some or all of the hotels remaining Radisson managed.

However, if such discussions do

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

not result in a mutually acceptable agreement for Radisson to continue to manage some or all of these hotels, we expect to transition management of those hotels to Sonesta.

Marriott agreement .

As of January 1, 2021, Marriott managed 105 of our hotels under agreements we had terminated in 2020 for Marriott’s failure to cover the cumulative shortfall between the payments we had received and 80 % of the cumulative priority returns due to us in accordance with the agreement.

We transferred the branding and management of 88 Marriott hotels to Sonesta in February and March 2021.

As of March 31, 2021, Marriott managed 17 of our hotels.

We sold of these hotels in April 2021 (see Note 4 for further information regarding this sale).

As of January 1, 2021, Marriott managed 105 of our hotels under agreements we had terminated in 2020 for Marriott’s failure to pay the cumulative shortfall between the payments we had received and 80 % of the cumulative priority returns due to us in accordance with the agreement.

We transitioned the branding and management of 88 Marriott managed hotels to Sonesta in February and March 2021.

We sold one hotel that Marriott managed in April 2021 (see Note 4 for further information regarding this sale).

As of June 30, 2021, Marriott managed 16 of our hotels.

We are in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to us, including Marriott’s assertion we are required to refund $ 19,120 of minimum return advances made to us in 2020, and the validity of the timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels encumbered with a Marriott brand.

1 unchanged sentence

We have entered an agreement with Marriott regarding the 16 hotels noted above, pursuant to which we agreed to have these hotels remain Marriott branded hotels until the arbitration is resolved.

Our Marriott hotels generated net operating cash flow deficits of $ 14,921 during the three months ended March 31, 2021.

Our Marriott hotels generated net operating cash flow of $ 2,341 and a net operating cash flow deficit of $ 12,580 during the three and six months ended June 30, 2021, respectively.

Any returns we receive from Marriott are limited to the hotels’ available cash flows, if any, after payment of operating expenses.

Marriott managed 122 of our hotels during the three months ended March 31, 2020 and we realized returns of $ 47,648 from our Marriott branded hotels during that period.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Radisson agreement .

Our management agreement with Radisson for nine hotels, or our Radisson agreement, which expires in 2037, provides that, as of March 31, 2021, we are to be paid an annual minimum return of $ 20,601 .

We realized minimum returns of $ 5,150 and $ 5,111 during the three months ended March 31, 2021 and 2020, respectively, under our Radisson agreement.

Pursuant to our Radisson agreement, Radisson has provided us with a guaranty, which is limited to $ 47,523 .

During the three months ended March 31, 2021, the hotels under our Radisson agreement generated cash flows that were less than the minimum returns due to us for the period and Radisson made $ 7,931 of guaranty payments to cover the shortfall.

The available balance of the guaranty was $ 5,306 as of March 31, 2021.

Marriott managed 122 of our hotels during the three and six months ended June 30, 2020.

We realized returns of $ 28,789 and $ 76,437 from our Marriott branded hotels during the three and six months ended June 30, 2020, respectively.

Our management agreement with IHG for one hotel expires on January 31, 2026.

Our IHG hotel generated net operating cash flow deficits of $ 1,502 during the three months ended March 31, 2021.

Our IHG hotel generated net operating cash flow of $ 156 and a cash flow deficit of $ 1,344 during the three and six months ended June 30, 2021, respectively.

Any returns we receive from IHG are limited to the hotels’ available cash flows, if any, after payment of operating expenses.

IHG managed or leased 103 hotels during the three months ended March 31, 2020.

We realized returns of $ 54,085 under our IHG agreement during that period.

We have entered into an agreement to sell five hotels and leased them to the buyer in anticipation of the sale and recognized $ 455 of rental income during the three months ended March 31, 2021.

See Note 4 for further information regarding this sale.

IHG managed or leased 103 of our hotels during the three and six months ended June 30, 2020.

We realized returns of $ 54,138 and $ 108,223 under our IHG agreement during the three and six months ended June 30, 2020, respectively.

Net lease portfolio

As of March 31, 2021, we owned 798 net lease service-oriented retail properties with 13,452,608 square feet with leases requiring annual minimum rents of $ 375,811 with a weighted (by annual minimum rents) average remaining lease term of 10.7 years.

As of June 30, 2021, we owned 796 net lease service-oriented retail properties with 13,440,784 square feet with leases requiring annual minimum rents of $ 371,907 with a weighted (by annual minimum rents) average remaining lease term of 10.5 years.

The portfolio was 98.5 % leased by 171 tenants operating under 130 brands in 21 distinct industries.

During the three months ended March 31, 2021, we collected 93.1 % of rents due from our net lease tenants.

In April 2021, we collected 97.7 % of rents due to us from our net lease tenants.

As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance.

During the three months ended March 31, 2021, we entered into rent deferral agreements for $ 1,228 of rent with five net lease tenants.

As of March 31, 2021, we had $ 10,605 of deferred rents outstanding related to 45 tenants who represent approximately 2.8 % of our annualized rental income of our net lease retail portfolio as of March 31, 2021.

As a result of the COVID-19 pandemic, some of our tenants requested rent assistance.

During the three months ended June 30, 2021, we entered into rent deferral agreements for $ 1,121 of rent with two net lease tenants.

As of June 30, 2021, we had $ 10,564 of deferred rents outstanding related to 35 tenants we granted rent relief to pursuant to these requests who represent approximately 2.9 % of our annualized rental income of our net lease retail portfolio as of June 30, 2021.

These deferred rents are included in other assets, net in our condensed consolidated balance sheets.

These tenants are obligated to pay, in most cases, the deferred rent over a 12 months - 24 months period.

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 or less than the original lease.

Because the deferred rent amounts referenced above will be repaid, the cash flows from the respective leases are substantially the same as before the rent deferrals.

The deferred amounts did not impact our operating results for the three months ended March 31, 2021.

These tenants are obligated to pay, in most cases, the deferred rent over a 12 months to 24 months period.

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 and account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance as the resulting cash flows from the modified lease are substantially the same as or less than the original lease.

The deferred amounts did not impact our operating results for the three or six months ended June 30, 2021.

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.

3 unchanged sentences

We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income.

We recorded reserves for uncollectible amounts against rental income of $ 4,785 and $ 1,115 for the three months ended March 31, 2021 and 2020, respectively.

We had reserves for uncollectible rents of $ 23,051 and $ 18,230 as of March 31, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.

We recorded reserves for uncollectible amounts against rental income of $ 1,176 and $ 4,995 for the three months ended June 30, 2021 and 2020, respectively, and $ 5,960 and $ 5,905 for the six months ended June 30, 2021 and 2020, respectively.

We had reserves for uncollectible rents of $ 23,786 and $ 18,230 as of June 30, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

TA is our largest tenant, leasing 26.7 % of our gross carrying value or real estate properties as of March 31, 2021.

We leased to TA a total of 179 travel centers under five leases that expire between 2029 and 2035, subject to TA’s right to extend those leases, and require annual minimum rents of $ 246,110 as of March 31, 2021.

TA is our largest tenant, leasing 26.7 % of our gross carrying value or real estate properties as of June 30, 2021.

We lease to TA a total of 179 travel centers under five leases that expire between 2029 and 2035, subject to TA’s right to extend those leases, and require annual minimum rents of $ 246,110 as of June 30, 2021.

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 of deferred rent to us for each of the three months ended March 31, 2021 and 2020.

The remaining balance of previously deferred rents was $ 35,228 as of March 31, 2021.

We recognized rental income from TA of $ 62,077 and $ 61,528 for the three months ended March 31, 2021 and 2020, respectively.

Rental income for the three months ended March 31, 2021 and 2020 was reduced by $ 3,305 and $ 3,344 respectively, 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 March 31, 2021 and December 31, 2020, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 52,620 and $ 55,530 , respectively.

TA paid $ 4,404 and $ 8,808 of deferred rent to us for the three and six months ended June 30, 2021 and 2020, respectively.

The remaining balance of previously deferred rents was $ 30,824 and $ 39,632 as of June 30, 2021 and December 31, 2020, respectively.

We recognized rental income from TA of $ 62,077 and $ 61,528 for the three months ended June 30, 2021 and 2020, respectively, and $ 124,154 and $ 123,055 for the six months ended June 30, 2021 and 2020, respectively.

Rental income was reduced by $ 3,217 and $ 3,236 for the three months ended June 30, 2021 and 2020, respectively, and $ 6,522 and $ 6,584 for the six months ended June 30, 2021 and 2020, respectively, 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, 2021 and December 31, 2020, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 49,636 and $ 55,530 , respectively.

These amounts are included in due from related persons in our condensed consolidated balance sheets.

In addition to the rental income that we recognized during the three months ended March 31, 2021 and 2020 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales.

In addition to the rental income that we recognized during the three months ended June 30, 2021 and 2020 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 $ 1,386 and $ 725 for the three months ended March 31, 2021 and 2020, respectively.

We had aggregate deferred percentage rent under our TA leases 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.

Our TA leases do not require FF&E escrow deposits.

1 unchanged sentence

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 three months ended March 31, 2021 or 2020.

We did not fund any capital improvements to our properties that we leased to TA during each of the three and six months ended June 30, 2021 or 2020.

See Note 9 for further information regarding our relationship with TA.

2 unchanged sentences

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 net lease properties (excluding TA) of $ 29,645 and $ 36,653 for the three months ended March 31, 2021 and 2020, respectively, which included $ 1,422 and $ 1,701 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.

Our principal debt obligations at March 31, 2021 were:

We recognized rental income from our net lease properties (excluding TA) of $ 33,479 and $ 32,386 for the three months ended June 30, 2021 and 2020, respectively, which included $ 2,919 and $ 4,099 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis and $ 63,163 and $ 69,039 for the six months ended June 30, 2021 and 2020, respectively, which included $ 6,523 and $ 5,800 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.

Our principal debt obligations at June 30, 2021 were:

(1) $ 1,000,000 of outstanding borrowings under our $ 1,000,000 revolving credit facility;

3 unchanged sentences

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 235 basis points per annum, subject to a LIBOR floor of 0.50 %, as of March 31, 2021.

We also pay a facility fee, which was 30 basis points per annum at March 31, 2021, on the total amount of lending commitments under our revolving credit facility.

We also pay a facility fee, which was 30 basis points per annum at June 30, 2021, 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 March 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.85 %.

The weighted average annual interest rate for borrowings under our revolving credit facility was 2.85 % and 2.60 % for the three months ended March 31, 2021 and 2020, respectively.

As of each of March 31, 2021 and May 6, 2021, our $ 1,000,000 revolving credit facility was fully drawn.

As of June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.85 %.

The weighted average annual interest rate for borrowings under our revolving credit facility was 2.85 % and 2.00 % for the three months ended June 30, 2021 and 2020, respectively, and 2.85 % and 2.30 % for the six months ended

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

June 30, 2021 and 2020, respectively.

As of each of June 30, 2021 and August 4, 2021, our $ 1,000,000 revolving credit facility was fully drawn.

We and our lenders amended our credit agreement governing our $ 1,000,000 revolving credit facility in 2020.

1 unchanged sentence

As a result of the amendments, among other things:

• we pledged certain equity interests of subsidiaries owning properties and will provide first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $ 1,835,000 as of March 31, 2021 to secure our obligations under the credit agreement;

• we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $ 1,834,420 as of June 30, 2021 to secure our obligations under the credit agreement;

• we have the ability to fund up to $ 250,000 of capital expenditures per year and up to $ 50,000 of certain other investments per year as defined in the credit agreement;

5 unchanged sentences

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.

Shareholders' Equity

Distributions

During the three months ended March 31, 2021, we declared and paid regular quarterly distributions to common shareholders as follows:

During the three months ended June 30, 2021, we declared and paid regular quarterly distributions to common shareholders as follows:

Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions

January 14, 2021 January 25, 2021 February 18, 2021 $ 0.01 $ 1,648

On April 15, 2021, we declared a regular quarterly distribution to common shareholders of record on April 26, 2021 of $ 0.01 per share, or $ 1,648 .

We expect to pay this amount on or about May 20, 2021.

April 15, 2021 April 26, 2021 May 20, 2021 0.01 1,648

$ 0.02 $ 3,296

On July 15, 2021, we declared a regular quarterly distribution to common shareholders of record as of July 26, 2021 of $ 0.01 per share, or $ 1,648 .

We expect to pay this amount on or about August 19, 2021.

On June 16, 2021, in accordance with our Trustee compensation arrangements, we awarded 7,000 of our common shares, valued at $ 13.94 per common share, the closing price of our common shares on The Nasdaq Stock Market, or Nasdaq, on that day, to each of our seven Trustees as part of their annual compensation.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Share Purchases

During the six months ended June 30, 2021, we purchased an aggregate of 15,079 of our common shares valued at a weighted average share price of $ 12.60 per share, from a former officer and a 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.

Business and Property Management Agreements with RMR LLC

2 unchanged sentences

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.

RMR also provides certain construction supervision services at our hotels managed by Sonesta.

We recognized net business management fees payable to RMR LLC of $ 10,299 and $ 10,560 for the three months ended March 31, 2021 and 2020, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2021 and 2020, no incentive fees are included in the net business management fees we

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

recognized for the three months ended March 31, 2021 or 2020.

The actual amount of annual incentive fees for 2021, 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, 2021, and will be payable in 2022.

(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, the office building component of one of our hotels and to major renovation or repositioning activities at our hotels.

We recognized net business management fees payable to RMR LLC of $ 10,743 and $ 8,411 for the three months ended June 30, 2021 and 2020, respectively, and $ 21,042 and $ 18,971 for the six months ended June 30, 2021 and 2020, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2021 or 2020.

We did not incur an incentive fee payable to RMR LLC for the year ended December 31, 2020.

We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of income (loss).

We recognized property management and construction supervision fees payable to RMR LLC of $ 804 and $ 1,032 for the three months ended March 31, 2021 and 2020, respectively.

Of those amounts, for the three months ended March 31, 2021 and 2020, $ 802 and $ 1,016 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of income (loss) and $ 2 and $ 16 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets.

We recognized property management and construction supervision fees payable to RMR LLC of $ 1,077 and $ 921 for the three months ended June 30, 2021 and 2020, respectively, and $ 1,881 and $ 1,941 for the six months ended June 30, 2021 and 2020, respectively.

Of those amounts, for the three months ended June 30, 2021 and 2020, $ 875 and $ 913 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of income (loss) and $ 202 and $ 8 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

For the six months ended June 30, 2021 and 2020, $ 1,678 and $ 1,929 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of income (loss) and $ 203 and $ 12 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

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 applicable 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 $ 744 and $ 543 for these expenses and costs for the three months ended March 31, 2021 and 2020, respectively.

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, 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 $ 734 and $ 139 for these expenses and costs for the three months ended June 30, 2021 and 2020, respectively, and $ 1,478 and $ 266 for the six months ended June 30, 2021 and 2020, respectively.

We included these amounts in other operating expenses and selling, general and administrative expenses, as applicable, in our condensed consolidated statements of income (loss).

On June 22, 2021, we and RMR LLC amended our property management agreement to, among other things, provide for RMR LLC's oversight of any major capital projects and repositioning activities at our hotels, including our hotels that are managed by Sonesta, as we may request from time to time.

RMR LLC will receive the same fee previously paid to Sonesta for these services, which is equal to 3 % of the cost of any such major capital project or repositioning activity.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Related Person Transactions

11 unchanged sentences

We lease 179 of our travel centers to TA under our TA leases.

As of March 31, 2021, we owned 1,184,797 shares of TA common stock, representing approximately 8.1 % of TA’s outstanding shares of common stock.

As of June 30, 2021, we owned 1,184,797 shares of TA common stock, representing approximately 8.1 % 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 March 31, 2021, beneficially owned 655,505 shares of TA common stock (including through RMR LLC), representing approximately 4.5 % of TA’s outstanding shares of common stock.

Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of June 30, 2021, beneficially owned 658,506 shares of TA common stock (including through RMR LLC), representing approximately 4.5 % of TA’s outstanding shares of common stock.

See Note 5 for further information regarding our relationships, agreements and transactions with TA and Note 12 for further information regarding our investment in TA.

Sonesta is a private company that is controlled by one of our Managing Trustees, Adam D.

Portnoy is the largest owner and a director of Sonesta.

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 is a private company.

One of our Managing Trustees, Mr.

Portnoy, is the controlling shareholder and a director of Sonesta.

and as our Secretary.

Sonesta’s chief executive officer and chief financial officer are officers of RMR LLC.

1 unchanged sentence

RMR LLC also provides certain services to Sonesta.

As of March 31, 2021, we owned approximately 34 % of Sonesta which managed 256 of our hotels.

As of June 30, 2021, we owned approximately 34 % of Sonesta which managed 261 of our hotels.

See Note 5 for further information regarding our relationships, agreements and transactions with Sonesta.

2 unchanged sentences

See Note 8 for further information regarding our management agreements with RMR LLC.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2020 Annual Report.

3 unchanged sentences

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 March 31, 2021, we recognized income tax expense of $ 853 , which includes $ 100 of foreign taxes and $ 753 of state taxes.

During the three months ended March 31, 2020, we recognized income tax expense of $ 342 which includes $ 51 of foreign taxes and $ 291 of state taxes.

During the three months ended June 30, 2021, we recognized income tax expense of $ 211 , which includes $ 70 of foreign taxes and $ 141 of state taxes.

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 and a $ 15,650 deferred tax liability recorded as a result of the book value to tax basis difference related to the accounting of an insurance settlement at one of our hotels.

During the six months ended June 30, 2021, we recognized income tax expense of $ 1,064 , which includes $ 170 of foreign taxes and $ 894 of state taxes.

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 deferred tax liability described above.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 March 31, 2021

For the Three Months Ended June 30, 2021

Hotels Net Lease Corporate Consolidated

6 unchanged sentences

General and administrative — — 13,952 13,952

Transaction related costs 6,151 — — 6,151

Loss on asset impairment — 899 — 899

Total expenses 315,916 59,898 13,952 389,766

Loss on sale of real estate — ( 9 ) — ( 9 )

Unrealized losses on equity securities — — ( 6,481 ) ( 6,481 )

Gain on sale of real estate, net 10,813 36 — 10,849

Unrealized gains on equity securities, net — — 2,500 2,500

Interest income — — 225 225

3 unchanged sentences

Income tax expense — — ( 211 ) ( 211 )

Equity in earnings of an investee 735 — — 735

Net income (loss) $ ( 23,988 ) $ 35,694 $ ( 102,816 ) $ ( 91,110 )

For the Six Months Ended June 30, 2021

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 449,088 $ — $ — $ 449,088

Rental income 701 187,317 — 188,018

Total revenues 449,789 187,317 — 637,106

Hotel operating expenses 438,536 — — 438,536

Other operating expenses — 7,321 — 7,321

Depreciation and amortization 134,707 111,338 — 246,045

General and administrative — — 26,609 26,609

Transaction related costs 25,785 — — 25,785

Loss on asset impairment — 2,110 — 2,110

Total expenses 599,028 120,769 26,609 746,406

Gain on sale of real estate, net 10,813 27 — 10,840

Unrealized losses on equity securities, net — — ( 3,981 ) ( 3,981 )

Interest income — — 282 282

Interest expense — — ( 180,769 ) ( 180,769 )

Income (loss) before income taxes and equity in losses of an investee ( 138,426 ) 66,575 ( 211,077 ) ( 282,928 )

Income tax expense — — ( 1,064 ) ( 1,064 )

Equity in losses of an investee ( 2,108 ) — — ( 2,108 )

Net income (loss) $ ( 140,534 ) $ 66,575 $ ( 212,141 ) $ ( 286,100 )

As of March 31, 2021

As of June 30, 2021

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

Hotels Net Lease Corporate Consolidated

8 unchanged sentences

Total expenses 137,216 69,247 11,302 217,765

Gain on sale of real estate — ( 6,911 ) — ( 6,911 )

Unrealized losses on equity securities — — ( 5,045 ) ( 5,045 )

Loss on sale of real estate, net — ( 2,853 ) — ( 2,853 )

Gain on insurance settlement 62,386 — — 62,386

Unrealized gains on equity securities, net — — 3,848 3,848

Interest income 15 — — 15

Interest expense — — ( 72,072 ) ( 72,072 )

Income (loss) before income taxes and equity in earnings of an investee

Loss on early extinguishment of debt — — ( 6,970 ) ( 6,970 )

Income (loss) before income taxes and equity in losses 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

Hotel operating revenues $ 500,859 $ — $ — $ 500,859

Rental income 2,573 195,284 — 197,857

Total revenues 503,432 195,284 — 698,716

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, net — ( 9,764 ) — ( 9,764 )

Gain on insurance settlement 62,386 — — 62,386

Unrealized loss on equity securities, net — — ( 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 losses of an investee 90,076 35,388 ( 176,525 ) ( 51,061 )

Income tax expense — — ( 17,002 ) ( 17,002 )

5 unchanged sentences

Fair Value of Assets and Liabilities

The table below presents certain of our assets carried at fair value at March 31, 2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

March 31, 2021 December 31, 2020

The table below presents certain of our assets carried at fair value at June 30, 2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

June 30, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

5 unchanged sentences

$ 4,259 $ 4,259 $ 13,543 $ 13,543

(1) As of March 31, 2021 and December 31, 2020, we owned 1,184,797 shares of TA common stock, which are included in other assets in our condensed consolidated balance sheets and reported at fair value based on quoted market prices (Level 1 inputs).

Our historical cost basis for these shares was $ 24,418 as of both March 31, 2021 and December 31, 2020.

During the three months ended March 31, 2021 we recorded unrealized losses of $ 6,481 to adjust the carrying value of our investment in TA shares to their fair values.

(2) As of March 31, 2021, we owned five hotels in four states with an aggregate carrying value of $ 10,699 and six net lease properties located in four states with an aggregate carrying value of $ 3,106 classified as held for sale.

(1) As of June 30, 2021 and December 31, 2020, we owned 1,184,797 shares of TA common stock, which are included in other assets in our condensed consolidated balance sheets and reported at fair value based on quoted market prices (Level 1 inputs).

Our historical cost basis for these shares was $ 24,418 as of both June 30, 2021 and December 31, 2020.

We recorded unrealized gains of $ 2,500 and $ 3,848 during the three months ended June 30, 2021 and 2020, respectively, and unrealized losses of $ 3,981 and $ 1,197 during the six months ended June 30, 2021 and 2020, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

(2) As of June 30, 2021, we owned eight net lease properties located in six states with an aggregate carrying value of $ 4,259 classified as held for sale.

These properties are recorded at their estimated fair value less costs to sell based on information derived from offers received from prospective buyers of the properties (Level 2 inputs as defined in the fair value hierarchy under GAAP).

We recorded a $ 1,211 loss on asset impairment during the three months ended March 31, 2021 to reduce the carrying value of two of these properties to their estimated fair value less costs to sell.

We recorded a $ 899 loss on asset impairment during the three months ended June 30, 2021 to reduce the carrying value of three of these properties to their estimated fair value less costs to sell.

As of December 31, 2020, we owned five hotels in four states with an aggregate carrying value of $ 10,699 and six net lease properties located in six states with an aggregate carrying value of $ 2,844 classified as held for sale.

In addition to the assets included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility and senior notes.

At March 31, 2021 and December 31, 2020, 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:

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

March 31, 2021 December 31, 2020

At June 30, 2021 and December 31, 2020, 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, 2021 December 31, 2020

Carrying Value (1)

28 unchanged sentences

(1) Carrying value includes unamortized discounts and premiums and issuance costs.

At March 31, 2021 and December 31, 2020, 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).

At June 30, 2021 and December 31, 2020, 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).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements