What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-04 · 275 added, 365 removed, 324 unchanged (66% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30,

2022 December 31,

9 unchanged sentences

Restricted cash 2,963 3,375

Equity method investments 61,974 62,687

Investment in equity securities 50,899 61,159

Due from related persons 44,430 48,168

14 unchanged sentences

4,553,020 4,552,558

Cumulative other comprehensive loss

( 755 ) ( 760 )

Cumulative other comprehensive income 783 779

Cumulative net income available for common shareholders

9 unchanged sentences

(amounts in thousands, except per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Hotel operating revenues $ 297,406 $ 168,953

6 unchanged sentences

Transaction related costs 1,177 19,635

Loss on asset impairment — 10,248 2,110 55,502

Loss on asset impairment, net 5,500 1,211

Total expenses 415,391 356,640

1 unchanged sentence

Gain (loss) on sale of real estate, net 5,548 ( 9 )

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

Gain on insurance settlement — — — 62,386

Unrealized losses on equity securities, net ( 10,260 ) ( 6,481 )

Interest income 273 57

1 unchanged sentence

( 92,344 ) ( 89,391 )

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

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

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

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

Loss before income taxes and equity in losses of an investee ( 118,410 ) ( 191,294 )

Income tax expense ( 695 ) ( 853 )

Equity in losses of an investee ( 717 ) ( 2,843 )

Net loss ( 119,822 ) ( 194,990 )

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited) (in thousands, except share data)

(in thousands, except share data)

Common Shares Additional

9 unchanged sentences

Net loss — — — — ( 119,822 ) — ( 119,822 )

Common share grants — — — 380 — — 380

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

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 )

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 — — — — — 4 4

Common share grants — — — 462 — — 462

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

Common share forfeitures ( 800 ) — — — — — —

Distributions — — ( 1,651 ) — — — ( 1,651 )

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 March 31, 2022 165,091,533 $ 1,651 $ ( 5,636,993 ) $ 4,553,020 $ 2,515,838 $ 783 $ 1,434,299

Balance at December 31, 2020 164,823,833 $ 1,648 $ ( 5,628,746 ) $ 4,550,385 $ 3,180,263 $ ( 760 ) $ 2,102,790

1 unchanged sentence

Common share grants — — — 380 — — 380

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

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

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 — — — — ( 37,349 ) — ( 37,349 )

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 Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 119,822 ) $ ( 194,990 )

Adjustments to reconcile net loss to cash (used in) provided by operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization 104,113 124,368

1 unchanged sentence

Straight-line rental income 1,973 1,883

Security deposits utilized — ( 109,162 )

Loss on early extinguishment of debt — 6,970

Loss on asset impairment 5,500 1,211

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

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

Unrealized loss on equity securities, net 10,260 6,481

Equity in losses of an investee 717 2,843

(Gain) loss on sale of real estate ( 5,548 ) 9

Gain on insurance settlement — ( 62,386 )

Deferred income taxes — 15,650

Other non-cash income, net ( 836 ) ( 1,020 )

4 unchanged sentences

Due to related persons 603 19,887

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

Net cash used in operating activities ( 11,983 ) ( 62,724 )

Cash flows from investing activities:

2 unchanged sentences

Hotel managers’ purchases with restricted cash ( 787 ) ( 14,198 )

Hotel manager’s deposit of insurance proceeds into restricted cash — 34,238

Net proceeds from sale of real estate 66,218 375

Investment in Sonesta — ( 25,443 )

Investment in TravelCenters of America — ( 7,011 )

Distributions in excess of earnings from Affiliates Insurance Company — 286

Net cash used in investing activities ( 87,352 ) ( 99,520 )

Net cash provided by (used in) investing activities 38,870 ( 68,806 )

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 — 973,168

1 unchanged sentence

Deferred financing costs ( 82 ) ( 303 )

Repurchase of common shares ( 787 ) ( 346 )

Distributions to common shareholders ( 1,651 ) ( 1,648 )

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

Net cash (used in) provided by financing activities ( 1,733 ) 919,625

Increase in cash and cash equivalents and restricted cash 25,154 788,095

9 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Supplemental cash flow information:

3 unchanged sentences

Real estate improvements accrued, not paid $ 7,901 $ 9,250

Investment in Sonesta — 42,000

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

3 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 service-focused retail net lease properties.

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 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.

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 service-focused retail net lease properties.

At March 31, 2022, we owned, directly and through our subsidiaries, 298 hotels and 786 net lease properties.

At March 31, 2022, all 298 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 256 hotels), Hyatt Hotels Corporation, or Hyatt ( 17 hotels), Radisson Hospitality, Inc., or Radisson ( eight hotels), Marriott International, Inc., or Marriott ( 16 hotels), and InterContinental Hotels Group, plc, or IHG ( one hotel).

At March 31, 2022, we owned 786 net lease properties with 174 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

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 third quarter of 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical, pre-pandemic levels.

As a result of the COVID-19 pandemic and the impact it has had on travel and the broader economy throughout the U.S.

since March 2020, our hotels have experienced significant declines in occupancy, which have had and are expected to continue to have a significant negative effect on our operating results and cash flow.

While occupancy has since recovered significantly, there remains uncertainty as to when and if operations at our hotels will return to pre-pandemic levels.

As of March 31, 2022, our $ 1,000,000 revolving credit facility was scheduled to mature on July 15, 2022.

In April 2022, we amended the agreement governing the credit facility to among other things, obtain additional covenant relief, we repaid $ 200,000 of the outstanding balance, and reduced the size of the facility from $ 1,000,000 to $ 800,000 .

Also in April 2022, we exercised a six month option to extend the maturity date of the credit facility to January 15, 2023.

We have $ 500,000 of unsecured senior notes due on August 15, 2022, which we currently expect to repay with cash on hand on or prior to the maturity date.

As of May 3, 2022, we have $ 916,106 of cash or cash equivalents.

We also have entered agreements to sell 47 properties for an aggregate sales price of $ 304,940 .

See Notes 4 and 7 for further information regarding our asset sales and debt.

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 $ 151,506 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 were $ 109,031 and $ 113,705 as of March 31, 2022 and December 31, 2021, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 33,192 and $ 42,432 as of March 31, 2022 and December 31, 2021, 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.

2 unchanged sentences

We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.

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 $ 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.

We reduced rental income by $ 1,973 and $ 1,883 for the three months ended March 31, 2022 and 2021, 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 10 for further information regarding our TA leases.

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.

Due from related persons includes $ 17,321 and $ 20,655 and other assets, net, includes $ 28,252 and $ 26,881 of straight line rent receivables at March 31, 2022 and December 31, 2021, 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 $ 1,849 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.

We recorded percentage rent of $ 756 and $ 180 for the three months ended March 31, 2022 and 2021, respectively.

We had deferred estimated percentage rent of $ 2,499 and $ 1,386 for the three months ended March 31, 2022 and 2021, respectively.

See Note 5 for further information on this deferred estimated percentage rent.

Weighted Average Common Shares

2 unchanged sentences

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.

For the three months ended March 31, 2022 and 2021, 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 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 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 comprehensive income (loss).

At March 31, 2022, we owned 298 hotels with an aggregate of 47,285 rooms or suites and 786 service-oriented retail properties with an aggregate of 13,515,100 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 $ 10,361,126 , including $ 452,100 related to properties classified as held for sale as of March 31, 2022.

We made capital expenditures at certain of our properties of $ 28,884 during the three months ended March 31, 2022.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(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

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

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

During the three months ended March 31, 2022, we sold seven properties for an aggregate sales price of $ 65,524 , 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 comprehensive income (loss).

Year of Sale Property Type Number of Properties Rooms or Suites/Square Feet Gross Sales Price Gain/ (Loss) on Sale

Properties sold during the three months ended March 31, 2022

2022 Hotels 5 1,060 $ 60,174 $ 5,122

2022 Net Lease 2 6,960 5,350 426

1,060 / 6,960

$ 65,524 $ 5,548

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 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.

As of March 31, 2022, we had 62 hotels with 7,607 rooms and an aggregate carrying value of $ 445,935 classified as held for sale and 19 net lease properties with 117,142 square feet and an aggregate carrying value of $ 6,165 classified as held for sale.

See Notes 5 and 13 for further information on these properties.

From April 1, 2022 through May 3, 2022, we sold 16 hotels with 2,021 rooms and an aggregate carrying value of $ 146,350 for an aggregate sales price of $ 169,469 , excluding closing costs and four net lease properties with 38,578 square feet and a net carrying value of $ 4,697 for an aggregate sales price of $ 3,469 excluding closing costs.

As of May 3, 2022, we have entered into agreements to sell 42 Sonesta branded hotels located in 22 states for an aggregate sales price of $ 301,125 and five net lease properties with an aggregate of 64,617 square feet for an aggregate sales price of $ 3,815 .

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

We continue to market four additional hotels with 631 keys for sale.

Management Agreements and Leases

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.

As of March 31, 2022, we owned 298 hotels which were included in six operating agreements and 786 service oriented retail properties net leased to 174 tenants.

We do not operate any of our properties.

Hotel 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.

Each of these agreements is for between one and 208 of our hotels.

In general, the agreements contain renewal options for all, but not less than all, of the affected properties included in each agreement, and the renewal terms range between one to 60 years .

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

(1) make payments to us of minimum returns;

(2) deposit a percentage of total hotel sales into FF&E reserves;

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 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 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.

As of March 31, 2022, Sonesta managed 40 of our full-service hotels, 154 of our extended stay hotels, and 62 of our select service hotels pursuant to management agreements for all of the hotels.

The hotels Sonesta managed for us comprised approximately 50.9 % of our total historical real estate investments.

On January 7, 2022, we and Sonesta amended and restated our management agreements effective January 1, 2022.

We refer to our management agreements with Sonesta collectively as our Sonesta agreement.

As of that date, we owned 261 hotels managed by Sonesta and 67 of these hotels were expected to be sold, or the Sale Hotels.

Among other things, the amendments to the agreements between us and Sonesta for 194 hotels, or the Retained Hotels, are as follows:

• The term for the Retained Hotels expires on January 31, 2037 and includes two 15 -year renewal options.

• All Retained Hotels are subject to a pooling agreement that combines the management agreements for the Retained Hotels for purposes of calculating gross revenues, hotel operating expenses, fees and distributions and the owner’s priority return due to us.

• The owner’s priority return for the Retained Hotels was initially set at $ 325,200 annually.

We have the right to terminate Sonesta’s management of specific hotels that we own if minimum performance thresholds are not met starting in 2023.

• We will renovate the Retained Hotels to comply with agreed upon brand standards.

As we advance such funding or fund other capital expenditures, the aggregate annual owner’s priority return due to us will increase by 6 % of the amounts funded.

• Trade area restrictions by hotel brand were added to define boundaries to protect our owned hotels in response to Sonesta increasing its franchising and third-party management activities.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(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.

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 $ 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 $ 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 $ 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.

For the Sale Hotels, the term was extended to December 31, 2022 (or until the applicable hotel has been sold) and the reserve established for the regular refurbishment of our hotels, or FF&E, reserve funding requirement was removed.

The Sale Hotels are subject to a pooling agreement that combines the management agreements for the Sale Hotels for purposes of calculating gross revenues, hotel operating expenses, management and related fees and the owner’s priority return due to us.

Our owner’s priority return will be reduced by the current owner’s priority return for a Sale Hotel once sold.

We sold five of the Sale Hotels during the three months ended March 31, 2022.

The total annual owner’s priority return for the remaining 62 Sale Hotels was $ 75,159 as of March 31, 2022.

We also sold 16 Sonesta hotels between April 1, 2022 and May 3, 2022 that had a total annual owner’s priority return of $ 18,724 as of March 31, 2022.

As of May 3, 2022, we had agreements to sell 42 additional Sonesta managed hotels for an aggregate sales price of $ 301,125 and having a total annual owner’s priority return of $ 46,527 as of March 31, 2022.

These pending sales are subject to conditions;

as a result, those sales may not occur, may be delayed or their terms may change.

See Notes 6 and 10 for further information regarding our sales of hotels managed by Sonesta.

Our Sonesta agreement provides that we are paid an annual owner’s priority return 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.

The 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 and with respect to the Retained Hotels, FF&E reserve escrows and Sonesta’s incentive fee, if applicable.

Our Sonesta hotels generated net operating cash flow of $ 3,029 and a net operating cash flow deficit of $ 37,394 for the three months ended March 31, 2022 and 2021, 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 $ 23,797 and $ 11,275 for the three months ended March 31, 2022 and 2021, 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.

Each of our 14 full-service hotels operated under the legacy management agreements and all the hotels operated under the conversion hotel management agreements require that 5 % of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the annual minimum returns due to us.

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 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 285 and $ 743 for the three months ended March 31, 2022 and 2021, 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 the hotels.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 19,067 and $ 21,713 during the three months ended March 31, 2022 and 2021, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 1,144 and $ 1,737 , respectively.

We owed Sonesta $ 4,633 and $ 17,248 for capital expenditures and other reimbursements at March 31, 2022 and 2021, respectively.

Sonesta owed us $ 3,029 in owner’s priority returns as of March 31, 2022.

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.

All of the hotels operated under the Retained Hotels management agreements require that 5 % of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the owner’s priority returns due to us.

No FF&E escrow deposits were required during either of the three months ended March 31, 2022 or 2021.

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 September 30, 2021 and December 31, 2020, respectively.

The sales of the hotels managed by Sonesta referenced above resulted in a return to us of working capital amounts we had previously advanced with respect to those hotels.

As of March 31, 2022 and December 31, 2021, we had advanced $ 55,158 and $ 56,697 , respectively, of initial working capital to Sonesta net of any working capital returned to us on termination of the applicable management agreements in connection with such sales.

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

Any remaining working capital would be returned to us upon termination in accordance with the terms of our Sonesta agreement.

See Notes 6 and 10 for further information regarding our relationship, agreements and transactions with Sonesta.

SERVICE PROPERTIES TRUST

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(dollars in thousands, except share data)

Accounting for Investment in Sonesta:

We account for our 34 % non-controlling interest in Sonesta under the equity method of accounting.

In March 2021, we funded a $ 25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation.

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

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.

The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total shareholders’ equity book value on the date of acquisition of our initial equity interest in Sonesta, February 27, 2020, by an aggregate of $ 8,000 .

As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition.

We recorded amortization of the basis difference of $ 65 in 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 comprehensive income (loss).

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.

Hyatt agreement.

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

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 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.

As of March 31, 2022, Hyatt managed 17 of our select service hotels pursuant to a portfolio management agreement that expires on March 31, 2031, or our Hyatt agreement, and provides that, as of March 31, 2022, we are to be paid an annual owner’s priority return of $ 12,651 .

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

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).

Hyatt has provided us with a $ 30,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us beginning in 2023.

We realized returns of $ 1,863 and $ 1,555 during the three months ended March 31, 2022 and 2021, respectively under our Hyatt agreement.

We incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 10,843 during the three months ended March 31, 2022, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 651 .

We did not incur any capital expenditures for any of the hotels included in our Hyatt agreement during the three months ended March 31, 2021.

Radisson agreement .

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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

As of March 31, 2022, Radisson managed eight of our full service hotels pursuant to a portfolio management agreement that expires on July 31, 2031, or our Radisson agreement, and provides that we are to be paid an annual owner’s priority return of $ 10,200 .

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

Radisson has provided us with a $ 22,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us beginning in 2023.

We realized returns of $ 454 and $ 5,150 during the three months ended March 31, 2022 and 2021, respectively, under our Radisson agreement.

We did no t incur capital expenditures for any of the hotels included in our Radisson agreement during either of the three months ended March 31, 2022 or March 31, 2021.

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 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 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 $ 4,685 and a net operating cash flow deficit of $ 7,895 during the three and nine months ended September 30, 2021, respectively.

As of March 31, 2022, Marriott managed 16 of our hotels.

We were previously in arbitration proceedings with Marriott regarding, among other things, the validity of the timing of the termination of the Marriott agreements in 2020, including an exit hotel agreement which, if not terminated, would have required us to sell the 16 hotels encumbered with a Marriott brand.

We entered an agreement with Marriott regarding the 16 hotels currently managed by Marriott, pursuant to which we agreed to have these hotels remain Marriott branded until the arbitration was resolved.

On January 18, 2022, the arbitration concluded, and we are currently evaluating our plans to maximize the value to us of these hotels.

Our Marriott hotels generated net operating cash flow of $ 323 during the three months ended March 31, 2022 and a net operating cash flow deficit of $ 14,921 during the three months ended March 31, 2021.

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 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.

We did not incur any capital expenditures for any of the hotels included in our Marriott agreement during the three months ended March 31, 2022 and incurred capital expenditures of $ 7,000 during the three months ended March 31, 2021.

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

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 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.

Our IHG hotel generated net

operating cash flow of $ 130 for the three months ended March 31, 2022 and a cash flow deficit of $ 1,502 for the three months ended March 31, 2021.

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

Net lease portfolio

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.

As of March 31, 2022, we owned 786 service-focused retail net lease properties with 13,515,100 square feet with leases requiring annual minimum rents of $ 372,023 with a weighted (by annual minimum rents) average remaining lease term of 10 years.

The portfolio was 97.6 % leased by 174 tenants operating under 133 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 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 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 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.

The review includes an assessment of whether substantially all of the amounts due under a tenant’s lease are probable of collection.

For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.

SERVICE PROPERTIES TRUST

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(dollars in thousands, except share data)

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.

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 $ 246,111 as of September 30, 2021.

TA is our largest tenant, leasing 27.5 % of our total historical real estate investments as of March 31, 2022.

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 $ 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.

TA paid $ 4,404 of deferred rent to us for each of the three months ended March 31, 2022 and 2021.

The remaining balance of previously deferred rents was $ 17,614 and $ 22,018 as of March 31, 2022 and December 31, 2021, respectively.

We recognized rental income from our TA leases of $ 62,038 and $ 62,077 for the three months ended March 31, 2022 and 2021, respectively.

Rental income was reduced by $ 3,344 and $ 3,305 for the three months ended March 31, 2022 and 2021, 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, 2022 and December 31, 2021, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 40,606 and $ 48,168 , 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 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 $ 1,849 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.

In addition to the rental income that we recognized during the three months ended March 31, 2022 and 2021 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales.

We recognize percentage rent due under our TA leases as rental income when all contingencies are met.

We had aggregate deferred percentage rent under our TA leases of $ 2,391 and $ 1,386 for the three months ended March 31, 2022 and 2021, 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 nine months ended September 30, 2021 or 2020.

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

We did not fund any capital improvements to our properties that we leased to TA during either of the three months ended March 31, 2022 or 2021.

See Notes 6 and 10 for further information regarding our relationship with TA.

Our other net lease agreements generally provide for minimum rent payments and in addition may include variable payments.

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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 $ 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:

We recognized rental income from our net lease properties (excluding TA) of $ 34,320 and $ 29,644 for the three months ended March 31, 2022 and 2021, respectively, which included $ 1,371 and $ 1,422 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.

The review includes an assessment of whether substantially all of the amounts due under a tenant’s lease are probable of collection.

For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term.

For leases that are deemed not probable of collection, revenue is recorded as cash is received.

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

We reduced our reserves for uncollectible amounts and increased rental income by $ 507 for the three months ended March 31, 2022 based on our assessment of collectability and cash received from certain tenants.

We recorded reserves for uncollectable amounts against rental income of $ 4,785 for the three months ended March 31, 2021.

We had reserves for uncollectable rents of $ 11,420 and $ 15,519 as of March 31, 2022 and December 31, 2021, respectively, included in other assets in our condensed consolidated balance sheets.

As of March 31, 2022, we had $ 6,355 of deferred rents outstanding related to six tenants who represented approximately 6.6 % of our annualized rental income of our net lease retail portfolio as of March 31, 2022, to which we granted rent relief during the COVID-19 pandemic.

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

The deferred amounts did not impact our operating results for the three months ended March 31, 2022.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Other Investments

Equity method investment

As of March 31, 2022, we owned approximately 34 % of Sonesta’s outstanding common stock.

We account for our 34 % non-controlling interest in Sonesta under the equity method of accounting.

As of March 31, 2022 and December 31, 2021, our investment in Sonesta had a carrying value of $ 61,974 and $ 62,687 , respectively.

The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total stockholders’ equity book value on the date of acquisition of our initial equity interest in Sonesta, February 27, 2020, by an aggregate of $ 8,000 .

We recorded amortization of the basis difference of $ 65 in each of the three months ended March 31, 2022 and 2021.

We recognized losses of $ 652 and $ 2,778 related to our investment in Sonesta for the three months ended March 31, 2022 and 2021, respectively.

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

We reduced hotel operating expenses by $ 621 for each of the three months ended March 31, 2022 and 2021, respectively, for amortization of this liability.

As of March 31, 2022 and December 31, 2021, the unamortized balance of this liability was $ 36,826 and $ 37,447 , respectively.

In March 2021, we funded a $ 25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation, which maintained our 34 % ownership in Sonesta.

In April, 2022, we funded a $ 25,000 capital contribution to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, NY.

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

We currently expect to make an additional capital contribution of approximately $ 21,000 before December 31, 2022 in connection with Sonesta’s acquisition of these four hotels.

Investment in equity securities.

As of both March 31, 2022 and December 31, 2021, we owned 1,184,797 shares of TA common stock, representing approximately 8.0 % of TA’s outstanding shares of common stock, and reported them at fair value based on quoted market prices (Level 1 inputs).

Our TA shares had a carrying value of $ 50,899 and $ 61,159 as of March 31, 2022 and December 31, 2021, respectively.

Our historical cost basis for these shares was $ 24,418 as of both March 31, 2022 and December 31, 2021.

We recorded unrealized losses of $ 10,260 and $ 6,481 during the three months ended March 31, 2022 and 2021, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

See Notes 4, 5 and 10 for further information regarding our relationships, agreements and transactions with TA and Note 13 for further information regarding our investment in TA.

Our principal debt obligations at March 31, 2022 were:

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

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(dollars in thousands, except share data)

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.

As of March 31, 2022 , t he maturity date of our revolving credit facility was July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we had the 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 September 30, 2021.

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.

Among other things, the amendments waived all of the then existing financial covenants through the end of the agreement term, or July 15, 2022, or the Waiver Period.

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 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;

We also pay a facility fee, which was 30 basis points per annum at March 31, 2022, 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, among other things, changes to our credit ratings.

As of March 31, 2022, 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 % for both the three months ended March 31, 2022 and 2021.

As of March 31, 2022, our revolving credit facility was fully drawn.

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

Among other things, the amendments waived all of the then existing financial covenants through the end of the then existing agreement term, or July 15, 2022.

As a result of the amendment, among other things:

• we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by the pledged subsidiaries;

• we had 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;

• we agreed to certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions);

• we agreed to maintain minimum liquidity of $ 125,000 ;

• 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.

Our credit agreement and our unsecured senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager.

Our credit agreement and our unsecured senior notes indentures and their supplements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios.

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.

• we were 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 have needed 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 were not able to 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 until we demonstrated compliance with certain covenants.

On April 14, 2022, we further amended our credit agreement and exercised our option to extend the maturity date of our revolving credit facility by six months to January 15, 2023.

Pursuant to the amendment:

• we repaid $ 200,000 of the outstanding balance and reduced the size of the revolving credit facility from $ 1,000,000 to $ 800,000 ;

• we are permitted to acquire up to an aggregate of $ 300,000 of real property through the waiver period, which was extended pursuant to the amendment to December 31, 2022;

• certain of the financial covenants in our credit agreement will be tested and in full force and effect beginning with the quarter ending September 30, 2022 and were modified to lower the required fixed charge coverage ratio from 1.5 x to 1.0 x through December 31, 2022, increase the required leverage ratio limit from 60 % to 70 % and increase the minimum liquidity requirement from $ 125,000 to $ 150,000 (which amount is subject to an additional increase as noted below);

• we can fund through the waiver period an aggregate of $ 100,000 of capital contributions requested by Sonesta for business activities and to acquire additional shares of common stock of TA to retain our pro rata ownership of TA, an increase from the previous aggregate limit of $ 50,000 ;

• the interest rate premium payable on borrowings under our revolving credit facility is increased from 235 basis points per annum to 250 basis points per annum, with the facility fee remaining unchanged at 30 basis points per annum on the total amount of lending commitments under the facility.

The interest rate premiums and the facility fee continue to be subject to adjustment based upon changes to our credit ratings and, pursuant to the amendment, the interest rate premium will increase by an additional 25 basis points if we do not satisfy certain financial covenants;

• we are required to maintain minimum liquidity of $ 650,000 until we repay our $ 500,000 of 5.0 % senior notes due in August, 2022 and at least $ 150,000 of liquidity thereafter.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

We continue to have the option to further extend the maturity date of our revolving credit facility by an additional six months , subject to the payment of an extension fee and meeting certain other conditions, including pursuant to the amendment, maintaining a $ 650,000 minimum liquidity requirement until we repay or refinance our $ 500,000 of 4.5 % senior notes due June 2023.

This requirement is reduced to $ 150,000 if we are in compliance with certain financial covenants, including the 1.5 x ratio of consolidated income available for debt service to debt service required to incur additional debt under the agreements governing our public debt.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $ 1,757,253 as of March 31, 2022 to secure our obligations under the credit agreement.

As of March 31, 2022, 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.

Shareholders' Equity

Distributions

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

During the three months ended March 31, 2022, 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 13, 2022 January 24, 2022 February 17, 2022 $ 0.01 $ 1,651

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 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

On April 14, 2022, we declared a regular quarterly distribution to common shareholders of record as of April 25, 2022 of $ 0.01 per share, or $ 1,651 .

We expect to pay this amount on or about May 19, 2022.

Business and Property Management Agreements with RMR

We have no employees.

The personnel and various services we require to operate our business are provided to us by RMR LLC.

We have two agreements with RMR LLC to provide management services to us:

(1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, excluding properties leased to TA, 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 $ 10,794 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 personnel and various services we require to operate our business are provided to us by RMR.

We have two agreements with RMR 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, the office building component of one of our hotels and major renovation or repositioning activities at our hotels that we may request RMR to manage from time to time.

We recognized net business management fees payable to RMR of $ 9,878 and $ 10,299 for the three months ended March 31, 2022 and 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2022 and 2021, no incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2022 or 2021.

The actual amount of annual incentive fees for 2022, 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, 2022, and will be payable in January 2023.

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

We did not incur an incentive fee payable to RMR for the year ended December 31, 2021.

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.

We and RMR amended our business management agreement effective August 1, 2021 to provide that (i) for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Hotel & Resort REIT Index will be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR, and (ii) for periods prior to August 1, 2021, the SNL U.S.

REIT Hotel Index will continue to be used.

Accordingly, the

SERVICE PROPERTIES TRUST

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.

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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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We recognized property management and construction supervision fees payable to RMR of $ 1,663 and $ 804 for the three months ended March 31, 2022 and 2021, respectively.

Of those amounts, for the three months ended March 31, 2022 and 2021, $ 1,018 and $ 802 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 645 and $ 2 , respectively, of construction and supervision fees were capitalized for the three months ended March 31, 2022 and 2021.

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 $ 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 are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR on our behalf.

We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR employees assigned to work exclusively or partly at our net lease properties, our share of the wages, benefits and other related costs of RMR's centralized accounting personnel, our share of RMR’s costs for providing our internal audit function, and as otherwise agreed.

We reimbursed RMR $ 764 and $ 744 for these expenses and costs for the three months ended March 31, 2022 and 2021, 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.

On June 22, 2021, we and RMR amended our property management agreement to, among other things, provide for RMR'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 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.

Related Person Transactions

We have relationships and historical and continuing transactions with TA, Sonesta, RMR LLC, The RMR Group, Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

RMR LLC is a majority owned operating subsidiary of RMR Inc.

We have relationships and historical and continuing transactions with TA, Sonesta, RMR, The RMR Group, Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

RMR is a majority owned operating subsidiary of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

Murray, our other Managing Trustee and our President and Chief Executive Officer also serves as an officer and employee of RMR LLC.

In addition, each of our other officers serves as an officer of RMR LLC.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services.

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

Other officers of RMR LLC, including Mr.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR.

Murray, our other Managing Trustee and our former President and Chief Executive Officer until March 31, 2022, also serves as an officer and employee of RMR, and each of our other officers serves as an officer of RMR.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services.

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

Other officers of RMR, 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).

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

As of March 31, 2022, we owned approximately 8.0 % of TA’s outstanding shares of common stock.

RMR 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, 2022, beneficially owned 658,505 shares of TA common stock (including through RMR), representing approximately 4.4 % of TA’s outstanding shares of common stock.

See Notes 5, 6 and 13 for further information regarding our relationships, agreements, transactions and investments with TA.

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

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

One of Sonesta’s other directors is our other Managing Trustee and former President and Chief Executive Officer and is Sonesta’s president and chief executive officer.

Sonesta’s other director serves as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc.

and as our Secretary.

Certain other officers of Sonesta are officers of RMR and certain other officers and employees of Sonesta are former employees of RMR.

RMR also provides certain services to Sonesta.

As of March 31, 2022, we owned approximately 34 % of Sonesta which managed 256 of our hotels.

See Notes 4, 5 and 6 for further information regarding our relationships, agreements and transactions with Sonesta.

Our Manager, RMR.

We have two agreements with RMR to provide management services to us.

See Note 9 for further information regarding our management agreements with RMR.

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1 unchanged sentence

(dollars in thousands, except share data)

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

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 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.

Sonesta is a private company.

One of our Managing Trustees, Mr.

Portnoy, is the controlling shareholder 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, as a managing director of RMR Inc.

and as our Secretary.

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

Certain other officers and employees of Sonesta are former employees of RMR LLC.

RMR LLC also provides certain services to Sonesta.

As of 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.

Our Manager, RMR LLC.

We have two agreements with RMR LLC to provide management services to us.

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

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2021 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 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

During the three months ended March 31, 2022, we recognized an income tax expense of $ 695 , which includes $ 581 of state tax expense and $ 114 of foreign tax expense.

During the three months ended March 31, 2021, we recognized an income tax expense of $ 853 , which includes $ 753 of state tax expense and $ 100 of foreign tax expense.

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 September 30, 2021

For the Three Months Ended March 31, 2022

Hotels Net Lease Corporate Consolidated

10 unchanged sentences

Gain on sale of real estate, net 4,990 558 — 5,548

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

Unrealized loss on equity securities, net — — ( 10,260 ) ( 10,260 )

Interest income — — 273 273

2 unchanged sentences

( 49,677 ) 46,764 ( 115,497 ) ( 118,410 )

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 Nine Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 787,463 $ — $ — $ 787,463

Rental income 700 286,042 — 286,742

Total revenues 788,163 286,042 — 1,074,205

Hotel operating expenses 723,769 — — 723,769

Other operating expenses — 11,758 11,758

Depreciation and amortization 200,772 169,436 — 370,208

General and administrative ( 276 ) 1,008 40,108 40,840

Transaction related costs 23,159 — 5,775 28,934

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

Total expenses 947,424 184,312 45,883 1,177,619

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

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

Interest income — — 485 485

Interest expense — — ( 273,227 ) ( 273,227 )

Income (loss) before income taxes and equity in losses of an investee ( 148,448 ) 101,851 ( 298,258 ) ( 344,855 )

Income tax expense — — ( 695 ) ( 695 )

Equity in earnings of an investee 50 — — 50

Equity in losses of an investee — — ( 717 ) ( 717 )

Net income (loss) $ ( 49,677 ) $ 46,764 $ ( 116,909 ) $ ( 119,822 )

As of September 30, 2021

As of March 31, 2022

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended September 30, 2020

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 199,719 $ — $ — $ 199,719

Rental income 674 96,102 — 96,776

Total revenues 200,393 96,102 — 296,495

Hotel operating expenses 174,801 — — 174,801

Other operating expenses — 3,705 — 3,705

Depreciation and amortization 64,517 57,687 — 122,204

General and administrative — — 12,295 12,295

Loss on asset impairment 262 9,986 — 10,248

Total expenses 239,580 71,378 12,295 323,253

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

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

Interest income 6 — — 6

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

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

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 Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Hotels Net Lease Corporate Consolidated

6 unchanged sentences

General and administrative — — 12,657 12,657

Transition related costs 19,635 — — 19,635

Loss on asset impairment — 1,211 — 1,211

1 unchanged sentence

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

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

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

Unrealized loss on equity securities, net — — ( 6,481 ) ( 6,481 )

Interest income — — 57 57

Interest expense — — ( 89,391 ) ( 89,391 )

Loss on early extinguishment of debt

— — ( 6,970 ) ( 6,970 )

Income (loss) before income taxes and equity in losses of an investee ( 113,662 ) 30,840 ( 108,472 ) ( 191,294 )

6 unchanged sentences

Fair Value of Assets and Liabilities

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

September 30, 2021 December 31, 2020

The table below presents certain of our assets carried at fair value at March 31, 2022, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

March 31, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

5 unchanged sentences

$ 452,100 $ 452,100 $ — $ —

(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 $ 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.

Assets of properties held for sale (Level 3) (2)

$ — $ — $ 515,518 $ 515,518

(1) See Note 6 for further information regarding our investment in TA.

(2) As of March 31, 2022, we owned 62 hotels with 7,607 rooms with an aggregate carrying value of $ 445,935 classified as held for sale and 19 net lease properties with 117,142 square feet with an aggregate carrying value of $ 6,165 classified as held for sale.

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

As of December 31, 2021, we owned 67 hotels with 8,667 rooms with an aggregate carrying value of $ 503,078 classified as held for sale and 22 net lease properties with 154,206 square feet with an aggregate carrying value of $ 12,440 classified as held for sale.

These properties are recorded at their estimated fair value less costs to sell based on information derived from third party appraisals (Level 3 inputs as defined in the fair value hierarchy under GAAP).

We recorded a $ 78,620 loss on asset impairment in 2021 to reduce the carrying value of certain of these properties to their estimated fair value less costs to sell.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 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

At March 31, 2022 and December 31, 2021, 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:

March 31, 2022 December 31, 2021

Carrying Value (1)

28 unchanged sentences

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

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).

At March 31, 2022 and December 31, 2021, 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