What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 233 added, 192 removed, 456 unchanged (48% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30,

2021 December 31,

36 unchanged sentences

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

11 unchanged sentences

Gain (loss) on sale of real estate, net 94 109 10,934 ( 9,655 )

Unrealized gain on equity securities, net 24,348 5,606 20,367 4,409

Gain on insurance settlement — — — 62,386

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

Interest income 203 6 485 283

3 unchanged sentences

Loss before income taxes and equity in earnings (losses) of an investee ( 61,927 ) ( 101,569 ) ( 344,855 ) ( 152,630 )

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

Income tax benefit (expense) 55 296 ( 1,009 ) ( 16,706 )

Equity in earnings (losses) of an investee 2,158 ( 1,369 ) 50 ( 4,305 )

Net loss ( 59,714 ) ( 102,642 ) ( 345,814 ) ( 173,641 )

Other comprehensive income:

Equity interest in investee’s unrealized gains 5 63 5 63

Other comprehensive income 5 63 5 63

Comprehensive loss $ ( 59,709 ) $ ( 102,579 ) $ ( 345,809 ) $ ( 173,578 )

Weighted average common shares outstanding (basic and diluted) 164,590 164,435 164,532 164,397

9 unchanged sentences

Comprehensive

Income (Loss)

Shares Common

3 unchanged sentences

Net loss — — — — ( 194,990 ) — ( 194,990 )

Share grants — — — 380 — — 380

Common share grants — — — 380 — — 380

Distributions to common shareholders — — ( 1,648 ) — — — ( 1,648 )

1 unchanged sentence

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

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

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

Common share grants 49,000 1 — 1,066 — — 1,067

Common share repurchases and forfeitures ( 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

Net loss — — — — ( 59,714 ) — ( 59,714 )

Equity in unrealized gains of investees — — — — — 5 5

Common share grants 291,700 2 — 1,046 — — 1,048

Common share repurchases and forfeitures ( 56,816 ) — — ( 600 ) — — ( 600 )

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

Balance at September 30, 2021 165,092,638 $ 1,651 $ ( 5,633,690 ) $ 4,552,087 $ 2,834,449 $ ( 755 ) $ 1,753,742

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 )

Share grants 6,000 — — 590 — — 590

Share repurchases ( 2,637 ) — — ( 43 ) — — ( 43 )

Common share grants 6,000 — — 590 — — 590

Common share repurchases and forfeitures ( 2,637 ) — — ( 43 ) — — ( 43 )

Distributions to common shareholders — — ( 90,509 ) — — — ( 90,509 )

1 unchanged sentence

Net loss — — — — ( 37,349 ) — ( 37,349 )

Share grants 35,000 — — 831 — — 831

Share repurchases ( 3,808 ) — — ( 27 ) — — ( 27 )

Distributions — — — — — — —

Common share grants 35,000 — — 831 — — 831

Common share repurchases and forfeitures ( 3,808 ) — — ( 27 ) — — ( 27 )

Balance at June 30, 2020 164,597,589 $ 1,646 $ ( 5,625,451 ) $ 4,548,880 $ 3,420,646 $ — $ 2,345,721

Net loss — — — — ( 102,642 ) — ( 102,642 )

Equity in unrealized gains of investees — — — — — 63 63

Common share grants 264,400 3 — 868 — — 871

Common share repurchases and forfeitures ( 38,156 ) ( 1 ) — ( 282 ) — — ( 283 )

Distributions — — ( 1,646 ) — — — ( 1,646 )

Balance at September 30, 2020 164,823,833 $ 1,648 $ ( 5,627,097 ) $ 4,549,466 $ 3,318,004 $ 63 $ 2,242,084

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

2 unchanged sentences

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

7 unchanged sentences

Loss on asset impairment 2,110 55,502

Unrealized losses on equity securities, net 3,981 1,197

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

Unrealized gain on equity securities, net ( 20,367 ) ( 4,409 )

Equity in (earnings) losses of an investee ( 50 ) 4,305

(Gain) loss on sale of real estate ( 10,934 ) 9,655

7 unchanged sentences

Due to related persons ( 16,483 ) ( 1,884 )

Net cash (used in) provided by operating activities ( 21,206 ) 48,797

Net cash provided by operating activities 1,002 65,524

Cash flows from investing activities:

5 unchanged sentences

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

Investment in TravelCenters of America — ( 7,011 )

Distributions in excess of earnings from Affiliates Insurance Company — 286

8 unchanged sentences

Distributions to common shareholders ( 4,944 ) ( 92,155 )

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

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

Net cash provided by financing activities 909,083 38,714

Increase in cash and cash equivalents and restricted cash 822,733 4,718

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

5 unchanged sentences

Total cash and cash equivalents and restricted cash $ 914,189 $ 85,977

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

For the Nine Months Ended September 30,

Supplemental cash flow information:

9 unchanged sentences

Organization and Basis of Presentation

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 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:

At September 30, 2021, we owned, directly and through our subsidiaries, 304 hotels and 794 net lease properties.

At September 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).

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.

At September 30, 2021, we owned 794 net lease properties with 175 tenants, including 179 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant.

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

Impact of COVID-19

1 unchanged sentence

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 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.

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

Basis of Presentation

11 unchanged sentences

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 $ 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 were $ 151,506 and $ 118,862 as of September 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 $ 39,169 and $ 70,240 as of September 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.

Revenue Recognition

We report hotel operating revenues for managed hotels in our condensed consolidated statements of income (loss).

We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income (loss).

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 income (loss).

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We report rental income for leased properties in our condensed consolidated statements of comprehensive income (loss).

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

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.

We reduced rental income by $ 905 for the three months ended September 30, 2021, increased rental income by $ 2,370 for the three months ended September 30, 2020 and reduced rental income by $ 3,087 and $ 298 for the nine months ended September 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 $ 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.

Due from related persons includes $ 24,113 and $ 33,902 and other assets, net, includes $ 25,172 and $ 16,264 of straight line rent receivables at September 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 $ 1,591 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.

We had deferred estimated percentage rent of $ 1,849 and $ 893 for the three months ended September 30, 2021 and 2020, respectively, and $ 4,827 and $ 1,742 for the nine months ended September 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 June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(in thousands)

Weighted average common shares for basic earnings per share 164,506 164,382 164,502 164,376

Effect of dilutive securities:

Unvested share awards — — — —

Weighted average common shares for diluted earnings per share 164,506 164,382 164,502 164,376

We calculate basic earnings per common share by dividing net loss by the weighted average number of our common shares outstanding during the period.

We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.

Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share.

For the three and nine months ended September 30, 2021 and 2020, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Real Estate Properties

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

At September 30, 2021, we owned 304 hotels with an aggregate of 48,439 rooms or suites and 794 service-oriented retail properties with an aggregate of 13,574,656 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 $ 11,145,815 , excluding six properties classified as held for sale as of September 30, 2021.

Capital expenditures made at certain of our properties were $ 73,218 and $ 108,392 during the nine months ended September 30, 2021 and 2020, respectively.

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.

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.

During the nine months ended September 30, 2021, we sold 11 properties for an aggregate sales price of $ 34,721 , 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).

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 comprehensive income (loss).

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

4 unchanged sentences

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

8/11/2021 1 Soddy Daisy, TN Net Lease 2,941 300 ( 33 )

9/30/2021 1 Lincoln, IL Net Lease 3,698 370 127

11 576 / 44,680

$ 34,721 $ 10,934

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.

In October 2021, we sold one net lease property with 7,070 rentable square feet for a sales price of $ 915 , excluding closing costs.

We are currently marketing for sale 68 Sonesta branded hotels ( 46 extended stay hotels with 5,404 rooms or suites, 19 select service hotels with 2,461 rooms or suites and three full service hotels with 895 rooms or suites) located in 27 states with an aggregate net carrying value of $ 578,982 as of September 30, 2021 .

We currently 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 14,630 square feet and an aggregate carrying value of $ 1,788 for an aggregate sales price of $ 2,275 , 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.

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

As of September 30, 2021, we had six net lease properties with an aggregate of 25,327 square feet classified as held for sale.

See Note 12 for further information on these properties.

Management Agreements and Leases

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.

As of September 30, 2021, we owned 304 hotels which were included in six operating agreements and 794 service oriented retail properties net leased to 175 tenants.

We do not operate any of our properties.

Hotel 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.

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

As of September 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.

2 unchanged sentences

Most of these agreements require the third party manager or tenant to:

(1) make payments to us of minimum returns or minimum rents;

(1) make payments to us of minimum returns;

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

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

and (3) 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.

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

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.

As of September 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.

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 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.

As of September 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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

As of September 30, 2021, Sonesta operated 261 of the 304 hotels we currently own, which comprised approximately 52.9 % of our total historical real estate investments.

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.

On November 1, 2021, we transitioned the branding and management of one additional hotel to Sonesta from Radisson.

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

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 $ 509,621 as of June 30, 2021.

Our fixed annual minimum return under our Sonesta agreement was $ 510,226 as of September 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 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.

Our Sonesta hotels generated net operating cash flow of $ 40,728 and a net operating cash flow deficit of $ 6,155 for the three months ended September 30, 2021 and 2020, respectively, and net operating cash flow of $ 28,531 and net operating cash flow deficit of $ 31,969 for the nine months ended September 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 $ 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 $ 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.

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 $ 26,640 and $ 3,831 for the three months ended September 30, 2021 and 2020, respectively, and $ 59,962 and $ 12,756 for the nine months ended September 30, 2021 and 2020, respectively.

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

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 184 for each of the three months ended September 30, 2021 and 2020, and $ 1,571 and $ 1,087 for the nine months ended September 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 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.

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

We incurred capital expenditures for certain hotels included in our Sonesta agreement of $ 76,035 and $ 48,119 during the nine months ended September 30, 2021 and 2020, respectively, which resulted in increases in our contractual annual minimum returns of $ 6,083 and $ 3,622 , respectively.

We owed Sonesta $ 5,016 and $ 26,096 for capital expenditures, and other reimbursements at September 30, 2021 and December 31, 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 $ 55,977 and $ 41,514 of initial working capital to Sonesta as of June 30, 2021 and December 31, 2020, respectively.

We had advanced $ 55,977 and $ 41,514 of initial working capital to Sonesta as of September 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 June 30, 2021, our investment in Sonesta had a carrying value of $ 59,981 .

As of September 30, 2021, our investment in Sonesta had a carrying value of $ 62,143 .

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 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 amortization of the basis difference of $ 65 in each of the three months ended September 30, 2021 and 2020 and $ 195 and $ 151 for the nine months ended September 30, 2021 and 2020, respectively.

We recognized income of $ 2,158 and a loss of $ 1,369 related to our investment in Sonesta for the three months ended September 30, 2021 and 2020, respectively, and income of $ 50 and a loss of $ 4,305 for the nine months ended September 30, 2021 and 2020, respectively.

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

We reduced hotel operating expenses by $ 621 for each of the three months ended September 30, 2021 and 2020, respectively, and $ 1,863 and $ 1,448 for the nine months ended September 30, 2021 and 2020, respectively, for amortization of this liability.

As of September 30, 2021, the unamortized balance of this liability was $ 38,068 .

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

1 unchanged sentence

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.

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

Our amended Hyatt 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 our amended Hyatt 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.

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

We realized returns of $ 2,768 and $ 5,509 during the three months ended September 30, 2021 and 2020, respectively, and returns of $ 6,634 and $ 16,528 during the nine months ended September 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.

During the nine months ended September 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

On November 1, 2021, we and Radisson amended our previous agreement for nine hotels we own, or our Radisson agreement.

Under our amended Radisson agreement, Radisson will continue to manage eight of the nine hotels we own for a 10 year term effective August 1, 2021.

Our amended Radisson agreement sets our annual minimum return at $ 10,200 and Radisson provided us with a new $ 22,000 limited guarantee for 75 % of the aggregate annual minimum returns due to us beginning in 2023.

Under our amended Radisson agreement, a management fee of 5 % of gross room revenues for each hotel operated under the Country Inn & Suites brand and a management fee of 3 % of gross room revenues for each hotel managed under the Radisson Hotel brand payable to Radisson will be an operating cost paid senior to our minimum return.

Radisson 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 $ 12,000 of renovations that are expected to be completed by the end of 2022.

As described above, we transitioned the management and branding of the ninth hotel that Radisson previously managed to Sonesta on November 1, 2021.

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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.

We realized minimum returns of $ 1,822 and $ 5,111 during the three months ended September 30, 2021 and 2020, respectively, and $ 11,878 and $ 15,332 during the nine months ended September 30, 2021 and 2020, respectively, under our Radisson agreement.

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

During the nine months ended September 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 $ 13,238 of guaranty payments to cover part of the shortfall and the Radisson guaranty was exhausted.

Marriott agreement .

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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.

As of September 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 that 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.

We are also seeking repayment of certain working capital advances we made to Marriott during 2020.

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

Our Marriott hotels generated net operating cash flow of $ 4,685 and a net operating cash flow deficit of $ 7,895 during the three and nine months ended September 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 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.

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

We realized returns of $ 14,369 and $ 91,076 from our Marriott branded hotels during the three and nine months ended September 30, 2020, respectively.

We incurred capital expenditures for certain hotels included in our Marriott agreement of $ 7,319 and $ 50,415 during the nine months ended September 30, 2021 and 2020, respectively.

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

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.

Our IHG hotel generated net operating cash flow of $ 962 and a net operating cash flow deficit of $ 384 during the three and nine months ended September 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 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.

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

We realized returns of $ 9,654 and $ 117,874 under our IHG agreement during the three and nine months ended September 30, 2020, respectively.

Net lease portfolio

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.

As of September 30, 2021, we owned 794 service-focused retail net lease properties with 13,574,656 square feet with leases requiring annual minimum rents of $ 370,945 with a weighted (by annual minimum rents) average remaining lease term of 10.3 years.

The portfolio was 98.2 % leased by 175 tenants operating under 134 brands in 21 distinct industries.

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.

During the three months ended September 30, 2021, we entered into a rent deferral agreement for $ 2,852 of rent with one net lease tenant.

As of September 30, 2021, we had $ 10,827 of deferred rents outstanding related to 15 tenants we granted rent relief to pursuant to such requests who represented approximately 2.9 % of our annualized rental income of our net lease retail portfolio as of September 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 to 24 months period.

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

The deferred amounts did not impact our operating results for the three or nine months ended September 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.

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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.

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.

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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.

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.

We reduced our reserves for uncollectible amounts and increased rental income by $ 5,373 for the three months ended September 30, 2021 based on our assessment of collectibility and cash received from certain tenants.

We recorded reserves for uncollectible amounts against rental income of $ 2,369 for the three months ended September 30, 2020, and $ 588 and $ 7,689 for the nine months ended September 30, 2021 and 2020, respectively.

We had reserves for uncollectible rents of $ 16,434 and $ 18,230 as of September 30, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.

TA is our largest tenant, leasing 26.7 % of our gross carrying value of real estate properties as of September 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 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.

TA paid $ 4,404 and $ 13,212 of deferred rent to us for the three and nine months ended September 30, 2021 and 2020, respectively.

The remaining balance of previously deferred rents was $ 26,420 and $ 39,632 as of September 30, 2021 and December 31, 2020, respectively.

We recognized rental income from TA of $ 62,116 and $ 61,528 for the three months ended September 30, 2021 and 2020, respectively, and $ 186,357 and $ 184,583 for the nine months ended September 30, 2021 and 2020, respectively.

Rental income was reduced by $ 3,267 and $ 3,250 for the three months ended September 30, 2021 and 2020, respectively, and $ 9,789 and $ 9,834 for the nine months ended September 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 September 30, 2021 and December 31, 2020, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 46,660 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 June 30, 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 September 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 $ 1,591 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.

We had aggregate deferred percentage rent under our TA leases of $ 1,849 and $ 893 for the three months ended September 30, 2021 and 2020, respectively, and $ 4,827 and $ 1,742 for the nine months ended September 30, 2021 and 2020, respectively.

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

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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 each of the three and six months ended June 30, 2021 or 2020.

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

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

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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 $ 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:

We recognized rental income from our net lease properties (excluding TA) of $ 36,608 and $ 34,574 for the three months ended September 30, 2021 and 2020, respectively, which included $ 2,361 and $ 5,620 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis and $ 99,594 and $ 106,804 for the nine months ended September 30, 2021 and 2020, respectively, which included $ 6,702 and $ 11,433 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.

Our principal debt obligations at September 30, 2021 were:

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

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Our revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders.

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 235 basis points per annum, subject to a LIBOR floor of 0.50 %, as of June 30, 2021.

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 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

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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.

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 noted below, 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 also pay a facility fee, which was 30 basis points per annum at September 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 September 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 2.55 % for the three months ended September 30, 2021 and 2020, respectively, and 2.85 % and 2.38 % for the nine months ended September 30, 2021 and 2020, respectively.

As of each of September 30, 2021 and November 3, 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.

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As a result of the amendments, among other things:

• 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 pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by the pledged subsidiaries with an undepreciated book value of $ 1,834,420 as of September 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;

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• we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to repay outstanding amounts under the credit agreement, and then to other debt maturities;

• in order to exercise the first six month extension option under the credit agreement, we would need to be in compliance with the financial covenants under the agreement calculated using pro forma projections as defined in the agreement for the quarter ending June 30, 2022, annualized, and have repaid or refinanced our $ 500,000 of 5.00 % senior notes due in August 2022;

• we may not, during the Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $ 2,300,000 on a combined basis in certain circumstances.

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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.

As of September 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.

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Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Shareholders' Equity

Distributions

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

During the three months ended September 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

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

July 15, 2021 July 26, 2021 August 19, 2021 0.01 1,648

$ 0.03 $ 4,944

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.

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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.

On October 14, 2021, we declared a regular quarterly distribution to common shareholders of record as of October 25, 2021 of $ 0.01 per share, or $ 1,651 .

We expect to pay this amount on or about November 18, 2021.

Common Share Awards

On June 16, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 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.

On September 15, 2021, we awarded under our equity compensation plan an aggregate of 291,700 of our common shares, valued at $ 10.82 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other current and former officers and employees of RMR LLC.

Common Share Purchases

During the nine months ended September 30, 2021, we purchased an aggregate of 70,795 of our common shares valued at a weighted average share price of $ 11.10 per share, from our officers and certain other current and former officers and employees 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

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(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 recognized net business management fees payable to RMR LLC of $ 10,794 and $ 8,641 for the three months ended September 30, 2021 and 2020, respectively, and $ 31,836 and $ 27,613 for the nine months ended September 30, 2021 and 2020, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of September 30, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three or nine months ended September 30, 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 January 2022.

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

We and RMR LLC amended our business management agreement effective August 1, 2021 to replace the benchmark index used in the calculation of incentive management fees.

Pursuant to the amendment, for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Hotel & Resort REIT Index will replace the discontinued SNL U.S.

REIT Hotel Index and be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR LLC.

For periods prior to August 1, 2021, the SNL U.S.

REIT Hotel Index will continue to be used.

Accordingly, the

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Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

calculation of incentive management fees for the next three measurement periods will continue to use the SNL U.S.

REIT Hotel Index in calculating the benchmark returns for periods through July 31, 2021.

This change of index was due to S&P Global, Inc.

ceasing to publish the SNL U.S.

REIT Hotel Index.

We recognized property management and construction supervision fees payable to RMR LLC of $ 1,384 and $ 781 for the three months ended September 30, 2021 and 2020, respectively, and $ 3,267 and $ 2,722 for the nine months ended September 30, 2021 and 2020, respectively.

Of those amounts, for the three months ended September 30, 2021 and 2020, $ 1,002 and $ 781 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 382 of construction and supervision fees were capitalized for the three months ended September 30, 2021.

For the nine months ended September 30, 2021 and 2020, $ 2,683 and $ 2,710 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 584 and $ 12 , respectively, of construction and supervision fees were capitalized.

The amounts capitalized are 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 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).

We reimbursed RMR LLC $ 679 and $ 258 for these expenses and costs for the three months ended September 30, 2021 and 2020, respectively, and $ 2,016 and $ 525 for the nine months ended September 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 comprehensive 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.

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Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Related Person Transactions

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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.

Adam Portnoy serves as chair of the boards of trustees or boards of directors and as a managing trustee or managing director of those 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.

See Note 7 for information relating to the annual share awards we made in September 2021 to our officers and certain other employees of RMR LLC and common shares we purchased from our officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them.

We include amounts recognized as expense for share awards to RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

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.

As of September 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 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.

Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of September 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.

7 unchanged sentences

RMR LLC also provides certain services to Sonesta.

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

As of September 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.

7 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 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.

During the three months ended September 30, 2021, we recognized an income tax benefit of $ 55 , which includes $ 139 of foreign taxes and $ 194 of state tax benefit.

During the three months ended September 30, 2020, we recognized an income tax benefit of $ 296 , which includes $ 123 of foreign tax benefit and $ 173 of state tax benefit.

During the nine months ended September 30, 2021, we recognized income tax expense of $ 1,009 , which includes $ 309 of foreign taxes and $ 699 of state taxes.

During the nine months ended September 30, 2020, we recognized income tax expense of $ 16,706 which includes $ 379 of foreign taxes, $ 677 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.

SERVICE PROPERTIES TRUST

3 unchanged sentences

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, 2021

For the Three Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

10 unchanged sentences

Gain on sale of real estate, net — 94 — 94

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

Unrealized gain on equity securities, net — — 24,348 24,348

Interest income — — 203 203

2 unchanged sentences

( 12,923 ) 36,283 ( 85,287 ) ( 61,927 )

Income tax expense — — ( 211 ) ( 211 )

Income tax benefit — — 55 55

Equity in earnings of an investee 2,158 — — 2,158

Net income (loss) $ ( 10,765 ) $ 36,283 $ ( 85,232 ) $ ( 59,714 )

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

10 unchanged sentences

Gain on sale of real estate, net 10,813 121 — 10,934

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

Unrealized gain on equity securities, net — — 20,367 20,367

Interest income — — 485 485

2 unchanged sentences

Income tax expense — — ( 1,009 ) ( 1,009 )

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

Equity in earnings of an investee 50 — — 50

Net income (loss) $ ( 148,398 ) $ 101,851 $ ( 299,267 ) $ ( 345,814 )

As of June 30, 2021

As of September 30, 2021

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended June 30, 2020

For the Three Months Ended September 30, 2020

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

Loss on sale of real estate, net — 109 — 109

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

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

Unrealized gain on equity securities, net — — 5,606 5,606

Interest income 6 — — 6

Interest expense — — ( 80,532 ) ( 80,532 )

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

Income (loss) before income taxes and equity in losses of an investee ( 39,181 ) 24,833 ( 87,221 ) ( 101,569 )

Income tax expense — — ( 16,660 ) ( 16,660 )

Income tax benefit — — 296 296

Equity in losses of an investee — — ( 1,369 ) ( 1,369 )

Net income (loss) $ ( 39,181 ) $ 24,833 $ ( 88,294 ) $ ( 102,642 )

For the Six Months Ended June 30, 2020

For the Nine Months Ended September 30, 2020

Hotels Net Lease Corporate Consolidated

10 unchanged sentences

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

Unrealized loss on equity securities, net — — ( 1,197 ) ( 1,197 )

Unrealized gain on equity securities, net — — 4,409 4,409

Interest income 168 — 115 283

10 unchanged sentences

Fair Value of Assets and Liabilities

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.

The table below presents certain of our assets carried at fair value at September 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

1 unchanged sentence

(dollars in thousands, except share data)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

5 unchanged sentences

$ 3,690 $ 3,690 $ 13,543 $ 13,543

(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.

(1) As of September 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 September 30, 2021 and December 31, 2020.

We recorded unrealized gains of $ 24,348 and $ 5,606 during the three months ended September 30, 2021 and 2020, respectively, and unrealized gains of $ 20,367 and $ 4,909 during the nine months ended September 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 September 30, 2021, we owned six net lease properties located in five states with an aggregate carrying value of $ 3,690 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 $ 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.

We recorded a $ 2,110 loss on asset impairment during the nine months ended September 30, 2021 to reduce the carrying value of five 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 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

At September 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:

September 30, 2021 December 31, 2020

Carrying Value (1)

28 unchanged sentences

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

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).

At September 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