What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-04 compared with 2022-05-04 · 258 added, 186 removed, 413 unchanged (52% of the section changed)

44 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

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

2022 2021 2022 2021

Hotel operating revenues $ 418,984 $ 280,135 $ 716,390 $ 449,088

9 unchanged sentences

Other operating income:

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

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

Gain on sale of real estate, net 38,851 10,849 44,399 10,840

Unrealized gains (losses) on equity securities, net ( 10,059 ) 2,500 ( 20,319 ) ( 3,981 )

Interest income 1,021 225 1,294 282

1 unchanged sentence

( 89,820 ) ( 91,378 ) ( 182,164 ) ( 180,769 )

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

Loss on early extinguishment of debt ( 791 ) — ( 791 ) —

Income (loss) before income taxes and equity in earnings (losses) of an investee 9,630 ( 91,634 ) ( 108,780 ) ( 282,928 )

Income tax expense ( 473 ) ( 211 ) ( 1,168 ) ( 1,064 )

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

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

Equity in earnings (losses) of an investee 2,193 735 1,476 ( 2,108 )

Net income (loss) 11,350 ( 91,110 ) ( 108,472 ) ( 286,100 )

Other comprehensive income:

1 unchanged sentence

Other comprehensive income 46 — 50 —

Comprehensive loss $ ( 119,818 ) $ ( 194,990 )

Comprehensive income (loss) $ 11,396 $ ( 91,110 ) $ ( 108,422 ) $ ( 286,100 )

Weighted average common shares outstanding (basic and diluted) 164,677 164,506 164,672 164,502

Net loss per common share (basic and diluted) $ ( 0.73 ) $ ( 1.19 )

Net income (loss) per common share (basic and diluted) $ 0.07 $ ( 0.55 ) $ ( 0.66 ) $ ( 1.74 )

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

18 unchanged sentences

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

Cumulative effect of accounting change — — — — — — —

Net income — — — — 11,350 — 11,350

Equity interest in investee’s unrealized gains — — — — — 46 46

Common share grants 49,000 — — 836 — — 836

Common share repurchases and forfeitures ( 2,078 ) — — ( 8 ) — — ( 8 )

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

Balance at June 30, 2022 165,138,455 $ 1,651 $ ( 5,638,644 ) $ 4,553,848 $ 2,527,188 $ 829 $ 1,444,872

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

3 unchanged sentences

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

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

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

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

2 unchanged sentences

(dollars in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Straight-line rental income 3,685 2,181

Loss on asset impairment 5,500 1,211

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

Loss on early extinguishment of debt 791 —

Loss on asset impairment, net 8,548 2,110

Unrealized losses on equity securities, net 20,319 3,981

Equity in (earnings) losses of an investee ( 1,476 ) 2,108

Gain on sale of real estate ( 44,399 ) ( 10,840 )

Other non-cash income, net ( 1,305 ) ( 1,363 )

4 unchanged sentences

Due to related persons ( 14,958 ) ( 5,290 )

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

Net cash provided by (used in) operating activities 59,297 ( 21,206 )

Cash flows from investing activities:

6 unchanged sentences

Cash flows from financing activities:

Repayment of senior unsecured notes ( 500,000 ) —

Borrowings under revolving credit facility — 984,027

1 unchanged sentence

Deferred financing costs ( 2,642 ) ( 6,497 )

Repurchase of common shares ( 4 ) ( 190 )

Distributions to common shareholders ( 3,302 ) ( 3,296 )

Net cash (used in) provided by financing activities ( 705,948 ) 911,593

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

(Decrease) increase in cash and cash equivalents and restricted cash ( 247,313 ) 825,169

Cash and cash equivalents and restricted cash at beginning of period 947,418 91,456

8 unchanged sentences

(dollars in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Supplemental cash flow information:

10 unchanged sentences

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:

At June 30, 2022, we owned, directly and through our subsidiaries, 247 hotels and 775 net lease properties.

At June 30, 2022, all 247 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 205 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.

At June 30, 2022, we owned 775 net lease properties with 176 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.

3 unchanged sentences

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 $ 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 were $ 164,423 and $ 113,705 as of June 30, 2022 and December 31, 2021, respectively, and consist primarily of our TRSs’ investment in Sonesta’s common stock and amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 36,419 and $ 42,432 as of June 30, 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 $ 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.

We reduced rental income by $ 1,712 and $ 299 for the three months ended June 30, 2022 and 2021, respectively, and reduced rental income by $ 3,685 and $ 2,181 for the six months ended June 30, 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 $ 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.

Due from related persons includes $ 14,080 and $ 20,655 and other assets, net, includes $ 29,781 and $ 26,881 of straight line rent receivables at June 30, 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 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.

We recorded percentage rent of $ 385 and $ 209 for the three months ended June 30, 2022 and 2021, respectively, and $ 1,141 and $ 389 for the six months ended June 30, 2022 and 2021, respectively.

We had deferred estimated percentage rent of $ 2,839 and $ 1,591 for the three months ended June 30, 2022 and 2021, respectively, and $ 5,338 and $ 2,977 for the six months ended June 30, 2022 and 2021, respectively.

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

Weighted Average Common Shares

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

We calculate basic earnings per common share under the two class method.

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

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

For the three 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.

Unvested share awards, and the related impact on earnings, are considered when calculating diluted earnings per share.

For the three and six months ended June 30, 2022 and 2021, there were no dilutive common shares.

Real Estate Properties

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

At June 30, 2022, we owned 247 hotels with an aggregate of 41,166 rooms or suites and 775 service-oriented retail properties with an aggregate of 13,406,568 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 $ 9,758,729 , including $ 68,034 related to properties classified as held for sale as of June 30, 2022.

We made capital expenditures at certain of our properties of $ 49,591 during the six months ended June 30, 2022.

During the six months ended June 30, 2022, we sold 69 properties for an aggregate sales price of $ 500,932 , 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.

1 unchanged sentence

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

Properties sold during the six months ended June 30, 2022

Q1 2022 Hotels 5 1,060 $ 60,174 $ 4,990

Q1 2022 Net Lease 2 6,960 5,350 558

Q2 2022 Hotels 51 6,119 427,694 39,878

Q2 2022 Net Lease 11 108,532 7,714 ( 1,027 )

69 7,179 / 115,492

$ 500,932 $ 44,399

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.

As of June 30, 2022, we had 11 hotels with 1,488 rooms and an aggregate carrying value of $ 66,338 classified as held for sale and eight net lease properties with 21,339 square feet and an aggregate carrying value of $ 1,696 classified as held for sale.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

From July 1, 2022 through August 3, 2022, we sold three hotels with 383 rooms and an aggregate carrying value of $ 17,952 for an aggregate sales price of $ 21,500 , excluding closing costs, and four net lease properties with 10,216 square feet and an aggregate carrying value of $ 678 for an aggregate sales price of $ 700 excluding closing costs.

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.

As of August 3, 2022, we have entered into agreements to sell four Sonesta branded hotels with an aggregate of 508 rooms for an aggregate sales price of $ 24,250 and two net lease properties with an aggregate of 3,840 square feet for an aggregate sales price of $ 325 .We continue to market 20 additional hotels with 2,752 rooms for sale.

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

See Notes 5 and 13 for further information on our property sales.

Management Agreements and Leases

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.

As of June 30, 2022, we owned 247 hotels which were included in six operating agreements and 775 service oriented retail properties net leased to 176 tenants.

We do not operate any of our properties.

1 unchanged sentence

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.

As of June 30, 2022, Sonesta managed 40 of our full-service hotels, 113 of our extended stay hotels, and 52 of our select service hotels pursuant to management agreements for all of the hotels.

The hotels Sonesta managed for us comprised approximately 47.9 % of our total historical real estate investments.

1 unchanged sentence

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:

As of that date, we owned 261 hotels managed by Sonesta and we expected to sell 67 of those hotels, or the Sale Hotels.

Among other things, the amendments to the agreements between us and Sonesta for 194 hotels we did not then expect to sell, 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.

5 unchanged sentences

• 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

For the Sale Hotels, the term was extended to December 31, 2022 (or, if earlier, 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.

We sold 56 of the Sale Hotels as of June 30, 2022 for an aggregate sales price of $ 487,868 , excluding closing costs.

We recognized a net gain of $ 44,869 and the total annual owner’s priority return was reduced by $ 68,111 in connection with these sales.

As of June 30, 2022, the total annual owner’s priority return for the remaining 11 Sale Hotels we then owned was $ 17,519 as of that date.

Subsequent to June 30, 2022, we sold an additional three Sale Hotels for an aggregate sales price of $ 21,500 , excluding closing costs, and the total annual owner’s priority return was reduced by $ 3,523 in connection with these sales.

As of August 3, 2022, we had agreements to sell an additional four Sale Hotels for an aggregate sales price of $ 24,250 and having a net book value of $ 18,516 and a total annual owner’s priority return of $ 5,578 as of June 30, 2022.

These pending sales are subject to conditions;

1 unchanged sentence

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

Our Sonesta hotels generated net operating cash flow of $ 77,424 and $ 25,198 for the three months ended June 30, 2022 and 2021, respectively, and net operating cash flow of $ 80,452 and a net operating cash flow deficit of $ 12,196 for the six months ended June 30, 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 $ 32,682 and $ 22,046 for the three months ended June 30, 2022 and 2021, respectively, and $ 56,479 and $ 33,321 for the six months ended June 30, 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 $ 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 269 and $ 643 for the three months ended June 30, 2022 and 2021, respectively, and $ 556 and $ 1,387 for the six months ended June 30, 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.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 33,226 and $ 56,452 during the six months ended June 30, 2022 and 2021, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 1,994 and $ 3,990 , respectively.

We owed Sonesta $ 7,028 and $ 18,433 for capital expenditures and other reimbursements at June 30, 2022 and 2021, respectively.

Sonesta owed us $ 20,527 and $ 4,592 in owner’s priority returns as of June 30, 2022 and December 31, 2021, respectively.

Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets.

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.

No FF&E escrow deposits were required during either of the three or six months ended June 30, 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.

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.

As of June 30, 2022 and December 31, 2021, we had advanced $ 51,206 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.

1 unchanged sentence

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 .

As of June 30, 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 June 30, 2022, we are to be paid an annual owner’s priority return of $ 12,735 .

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

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.

Hyatt has provided us with a $ 30,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us that will become effective upon substantial completion of planned renovations of the hotels we currently expect to occur in 2023.

We realized returns of $ 4,525 and $ 2,311 during the three months ended June 30, 2022 and 2021, respectively, and $ 6,388 and $ 3,867 for the six months ended June 30, 2022 and 2021, respectively, under our Hyatt agreement.

We incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 11,936 during the six months ended June 30, 2022, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 716 .

We did not incur capital expenditures for any of the hotels included in our Hyatt agreement during the six months ended June 30, 2021.

Radisson agreement .

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 .

As of June 30, 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.

Radisson has provided us with a $ 22,000 limited guarantee for 75 % of the

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

aggregate annual owner's priority returns due to us that will become effective upon substantial completion of planned renovations of certain of the hotels we currently expect to occur in 2023.

We realized returns of $ 3,020 and $ 4,906 during the three months ended June 30, 2022 and 2021, respectively, and $ 3,474 and $ 10,056 for the six months ended June 30, 2022 and 2021, respectively, under our Radisson agreement.

We incurred capital expenditures of $ 298 for the hotels included in our Radisson agreement for the three and six months ended June 30, 2022.

We did no t incur capital expenditures for any of the hotels included in our Radisson agreement during the three or six months ended June 30, 2021.

Marriott agreement .

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

As of June 30, 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.

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

Our Marriott hotels generated net operating cash flow of $ 3,842 and $ 2,341 during the three months ended June 30, 2022 and 2021, respectively, and net operating cash flow of $ 3,593 and a net operating cash flow deficit of $ 12,580 during the six months ended June 30, 2022 and 2021, respectively.

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

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.

We did not incur capital expenditures for any of the hotels included in our Marriott agreement during the six months ended June 30, 2022.

We incurred capital expenditures of $ 7,250 for the hotels included in our Marriott agreement during the six months ended June 30, 2021.

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

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.

operating cash flow of $ 1,208 and $ 156 during the three months ended June 30, 2022 and 2021, respectively, and net operating cash flow of $ 1,337 and a cash flow deficit of $ 1,344 for the six months ended June 30, 2022 and 2021, respectively.

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 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.

As of June 30, 2022, we owned 775 service-focused retail net lease properties with 13,406,568 square feet with leases requiring annual minimum rents of $ 372,120 with a weighted (by annual minimum rents) average remaining lease term of 10.0 years.

The portfolio was 98.8 % leased by 176 tenants operating under 134 brands in 20 distinct industries.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

We lease to TA a total of 179 travel centers under five leases that expire between 2029 and 2035, subject to TA’s right to extend those leases, and require annual minimum rents of $ 246,110 as of March 31, 2022.

TA is our largest tenant, leasing 29.2 % of our total historical real estate investments as of June 30, 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 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.

TA paid $ 4,404 and $ 8,808 of deferred rent to us for each of the three and six months ended June 30, 2022 and 2021, respectively.

The remaining balance of previously deferred rents was $ 13,211 and $ 22,018 as of June 30, 2022 and December 31, 2021, respectively.

We recognized rental income from our TA leases of $ 62,186 and $ 62,077 for the three months ended June 30, 2022 and 2021, respectively, and $ 124,269 and $ 124,154 for the six months ended June 30, 2022 and 2021, respectively.

Rental income was reduced by $ 3,241 and $ 3,217 for the three months ended June 30, 2022 and 2021, respectively, and $ 6,585 and $ 6,522 for the six months ended June 30, 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 June 30, 2022 and December 31, 2021, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 37,496 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 March 31, 2022 and 2021 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales.

In addition to the rental income that we recognized during the three months ended June 30, 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.

We had aggregate deferred percentage rent under our TA leases of $ 2,839 and $ 1,591 for the three months ended June 30, 2022 and 2021, respectively, and $ 5,338 and $ 2,977 for the six months ended June 30, 2022 and 2021, respectively.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

1 unchanged sentence

Under our TA leases, TA may request that we fund capital improvements in return for increases in TA’s annual minimum rent equal to 8.5 % of the amounts funded.

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

We did not fund any capital improvements to our properties that we leased to TA during the three and six months ended June 30, 2022 or 2021.

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

2 unchanged sentences

Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.

We recognized rental income from our net lease properties (excluding TA) of $ 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.

We recognized rental income from our net lease properties (excluding TA) of $ 34,607 and $ 33,479 for the three months ended June 30, 2022 and 2021, respectively, which included $ 1,530 and $ 2,919 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis, and $ 68,927 and $ 63,163 for the six months ended June 30, 2022 and 2021, respectively, which included $ 2,901 and $ 5,800 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.

We continually review receivables related to rent, straight-line rent and property operating expense reimbursements and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

3 unchanged sentences

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

We 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.

We reduced our reserves for uncollectible amounts and increased rental income by $ 160 and $ 667 for the three and six months ended June 30, 2022, respectively, based on our assessment of collectability and cash received from certain tenants.

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

We had reserves for uncollectable rents of $ 11,259 and $ 15,519 as of June 30, 2022 and December 31, 2021, respectively, included in other assets in our condensed consolidated balance sheets.

As of June 30, 2022, we had $ 5,492 of deferred rents outstanding related to five tenants who represented approximately 3.7 % of our annualized rental income of our net lease retail portfolio as of June 30, 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)

The deferred amounts did not impact our operating results for the three months ended June 30, 2022.

Other Investments

Equity method investment

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

As of June 30, 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.

As of June 30, 2022 and December 31, 2021, our investment in Sonesta had a carrying value of $ 109,682 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 .

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 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.

We recorded amortization of the basis difference of $ 65 in each of the three months ended June 30, 2022 and 2021 and $ 130 in each of the six months ended June 30, 2022 and 2021.

We recognized income of $ 2,258 and $ 800 related to our investment in Sonesta for the three months ended June 30, 2022 and 2021, respectively, and income of $ 1,606 and losses of $ 1,978 for the six months ended June 30, 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).

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 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.

We reduced hotel operating expenses by $ 621 for each of the three months ended June 30, 2022 and 2021, respectively, and $ 1,242 for each of the six months ended June 30, 2022 and 2021, respectively, for amortization of this liability.

As of June 30, 2022 and December 31, 2021, the unamortized balance of this liability was $ 36,205 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.

In April 2022 and June 2022, we funded $ 25,000 and $ 20,470 , respectively, of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, NY using cash on hand.

We continue to maintain our 34 % ownership in Sonesta after giving effect to these fundings.

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.

As of both June 30, 2022 and December 31, 2021, we owned approximately 8.0 % of TA’s outstanding shares of common stock, and reported this investment at fair value based on quoted market prices (Level 1 inputs).

Our TA shares had a carrying value of $ 40,840 and $ 61,159 as of June 30, 2022 and December 31, 2021, respectively.

Our historical cost basis for these shares was $ 24,418 as of both June 30, 2022 and December 31, 2021.

We recorded an unrealized loss of $ 10,059 and unrealized gain of $ 2,500 for the three months ended June 30, 2022 and 2021, respectively, and unrealized loss of $ 20,319 and $ 3,981 , for the six months ended June 30, 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:

Our principal debt obligations at June 30, 2022 were:

(1) $ 800,000 of outstanding borrowings under our $ 800,000 revolving credit facility;

1 unchanged sentence

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

As of June 30, 2022 , t he maturity date of our revolving credit facility was January 15, 2023, and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of the facility for one six-month period.

We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 235 basis points per annum, subject to a LIBOR floor of 0.50 %, as of March 31, 2022.

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.

We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 250 basis points per annum, subject to a LIBOR floor of 0.50 %, as of June 30, 2022.

We also pay a facility fee, which was 30 basis points per annum at June 30, 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.

As of June 30, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 3.69 %.

The weighted average annual interest rate for borrowings under our revolving credit facility was 3.25 % for the three months ended June 30, 2022, 3.05 % for the six months ended June 30, 2022 and 2.85 % for both the three and six months ended June 30, 2021.

We and our lenders amended the credit agreement governing our 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.

Among other things, the amendment 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:

4 unchanged sentences

• 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;

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

• 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;

6 unchanged sentences

• 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 premium payable on borrowings under our revolving credit facility was 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.

• we are required to maintain minimum liquidity of at least $ 150,000 .

As a result of the decrease in the size of the revolving credit facility, we recognized a loss on early extinguishment of debt of $ 590 during the six months ended June 30, 2022, which represented the write off of a portion of deferred financing fees.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $ 1,578,603 as of June 30, 2022 to secure our obligations under the credit agreement.

On June 15, 2022, we redeemed at par all of our outstanding 5.00 % senior notes due 2022 for a redemption price equal to the principal amount of $ 500,000 , plus accrued and unpaid interest.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 201 during the three and six months ended June 30, 2022, which represented the unamortized discounts and issuance costs related to these notes.

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, 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 June 30, 2022, we believe we were in compliance with the terms and conditions of our credit agreement subject to the waiver described above, and our unsecured senior notes indentures and their supplements.

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 March 31, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

During the six months ended June 30, 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

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.

April 14, 2022 April 25, 2022 May 19, 2022 0.01 1,651

$ 0.02 $ 3,302

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

We expect to pay this amount on or about August 18, 2022.

On June 15, 2022, in accordance with our Trustee compensation arrangements, we awarded 7,000 of our common shares, valued at $ 5.70 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, to each of our seven Trustees as part of their annual compensation.

Share Purchases

During the six months ended June 30, 2022, we purchased an aggregate of 478 of our common shares valued at a weighted average share price of $ 7.94 per share.

These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of a former employee of RMR in connection with awards of our common shares we previously made to such former employee.

We withheld and purchased these shares at their fair market values based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Business and Property Management Agreements with RMR

3 unchanged sentences

(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.

We recognized net business management fees payable to RMR of $ 9,305 and $ 10,743 for the three months ended June 30, 2022 and 2021, respectively, and $ 19,183 and $ 21,042 for the six months ended June 30, 2022 and 2021, respectively.

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

10 unchanged sentences

(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 recognized property management and construction supervision fees payable to RMR of $ 1,235 and $ 1,077 for the three months ended June 30, 2022 and 2021, respectively, and $ 2,898 and $ 1,881 for the six months ended June 30, 2022 and 2021, respectively.

Of those amounts, for the three months ended June 30, 2022 and 2021, $ 1,014 and $ 875 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 221 and $ 202 , respectively, of construction and supervision fees were capitalized for the three months ended June 30, 2022 and 2021.

The amounts capitalized are included in building, improvements and equipment in our condensed consolidated balance sheets.

For the six months ended June 30, 2022 and 2021, $ 2,032 and $ 1,678 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 867 and $ 203 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets.

The amounts capitalized 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 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 reimbursed RMR $ 685 and $ 734 for these expenses and costs for the three months ended June 30, 2022 and 2021, respectively, and $ 1,439 and $ 1,478 for the six months ended June 30, 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).

7 unchanged sentences

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.

Murray, our other Managing Trustee and our 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.

3 unchanged sentences

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.

As of June 30, 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.

Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of June 30, 2022, beneficially owned (including through RMR) approximately 4.5 % of TA’s outstanding shares of common stock.

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

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

5 unchanged sentences

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.

As of June 30, 2022, we owned approximately 34 % of Sonesta which managed 205 of our hotels.

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

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

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.

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 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.

During the three months ended June 30, 2022, we recognized an income tax expense of $ 473 , which includes $ 255 of state tax expense and $ 218 of foreign tax expense.

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

During the six months ended June 30, 2022, we recognized an income tax expense of $ 1,168 , which includes $ 835 of state tax expense and $ 333 of foreign tax expense.

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Segment Information

We aggregate our hotels and net lease portfolio into two reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Hotels Net Lease Corporate Consolidated

7 unchanged sentences

Transaction related costs — — 743 743

Loss on asset impairment 5,568 ( 68 ) — 5,500

Loss on asset impairment, net 3,047 1 — 3,048

Total expenses 384,119 47,822 13,408 445,349

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

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

Gain (loss) on sale of real estate, net 39,878 ( 1,027 ) — 38,851

Unrealized losses on equity securities, net — — ( 10,059 ) ( 10,059 )

Interest income — — 1,021 1,021

Interest expense — — ( 89,820 ) ( 89,820 )

Loss on early extinguishment of debt

— — ( 791 ) ( 791 )

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

1 unchanged sentence

Income tax expense — — ( 473 ) ( 473 )

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

Equity in earnings of an investee — — 2,193 2,193

Net income (loss) $ 74,743 $ 47,944 $ ( 111,337 ) $ 11,350

As of March 31, 2022

For the Six Months Ended June 30, 2022

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 716,390 $ — $ — $ 716,390

Rental income — 193,151 — 193,151

Total revenues 716,390 193,151 — 909,541

Hotel operating expenses 615,537 — — 615,537

Other operating expenses — 5,650 — 5,650

Depreciation and amortization 112,040 92,593 — 204,633

General and administrative — — 24,452 24,452

Transaction related costs — — 1,920 1,920

Loss on asset impairment, net 8,615 ( 67 ) — 8,548

Total expenses 736,192 98,176 26,372 860,740

Gain (loss) on sale of real estate, net 44,868 ( 469 ) — 44,399

Unrealized losses on equity securities, net — — ( 20,319 ) ( 20,319 )

Interest income — — 1,294 1,294

Interest expense — — ( 182,164 ) ( 182,164 )

Loss on early extinguishment of debt — — ( 791 ) ( 791 )

Income (loss) before income taxes and equity in losses of an investee 25,066 94,506 ( 228,352 ) ( 108,780 )

Income tax expense — — ( 1,168 ) ( 1,168 )

Equity in earnings of an investee — — 1,476 1,476

Net income (loss) $ 25,066 $ 94,506 $ ( 228,044 ) $ ( 108,472 )

As of June 30, 2022

Hotels Net Lease Corporate Consolidated

Total assets $ 4,100,503 $ 3,471,848 $ 759,208 $ 8,331,559

2 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended March 31, 2021

For the Three Months Ended June 30, 2021

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

Total expenses 315,916 60,370 13,480 389,766

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

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

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

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

Interest income — — 225 225

2 unchanged sentences

Income tax expense — — ( 211 ) ( 211 )

Equity in earnings of an investee — — 735 735

Net income (loss) $ ( 24,723 ) $ 35,222 $ ( 101,609 ) $ ( 91,110 )

For the Six Months Ended June 30, 2021

Hotels Net Lease Corporate Consolidated

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

Rental income 701 187,317 — 188,018

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

Hotel operating expenses 438,536 — — 438,536

Other operating expenses — 8,109 — 8,109

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

General and administrative — — 25,821 25,821

Acquisition related costs — — — —

Transition costs 25,785 — — 25,785

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

Total expenses 599,028 121,556 25,822 746,406

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

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

Interest income — — 282 282

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

Income (loss) before income taxes and equity in losses of an investee ( 138,426 ) 65,788 ( 210,290 ) ( 282,928 )

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

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

4 unchanged sentences

Fair Value of Assets and Liabilities

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

The table below presents certain of our assets carried at fair value at June 30, 2022, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

June 30, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

5 unchanged sentences

$ 68,034 $ 68,034 $ 515,518 $ 515,518

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.

(2) As of June 30, 2022, we owned 11 hotels with 1,488 rooms with an aggregate carrying value of $ 66,338 classified as held for sale and 8 net lease properties with 21,339 square feet with an aggregate carrying value of $ 1,696 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).

We recorded a $ 29,890 loss on asset impairment in 2021 and a $ 4,229 loss on asset impairment in 2022 to reduce the carrying value of certain of these properties to their estimated fair value less costs to sell.

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.

1 unchanged sentence

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 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

At June 30, 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:

June 30, 2022 December 31, 2021

Carrying Value (1)

28 unchanged sentences

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

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).

At June 30, 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