What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 213 added, 189 removed, 482 unchanged (45% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30,

2022 December 31,

39 unchanged sentences

(amounts in thousands, except per share data)

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

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

2022 2021 2022 2021

10 unchanged sentences

Other operating income:

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 )

(Loss) gain on sale of real estate, net ( 164 ) 94 44,235 10,934

Unrealized gains on equity securities, net 23,056 24,348 2,737 20,367

Interest income 1,442 203 2,735 485

2 unchanged sentences

Loss on early extinguishment of debt — — ( 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 earnings (losses) of an investee 2,193 735 1,476 ( 2,108 )

Income (loss) before income taxes and equity in earnings of an investee 5,089 ( 61,927 ) ( 103,691 ) ( 344,855 )

Income tax (expense) benefit ( 390 ) 55 ( 1,558 ) ( 1,009 )

Equity in earnings of an investee 2,801 2,158 4,277 50

Net income (loss) 7,500 ( 59,714 ) ( 100,972 ) ( 345,814 )

25 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

4 unchanged sentences

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

Net income — — — — 7,500 — 7,500

Equity interest in investee’s unrealized gains — — — — — 684 684

Common share grants 384,500 4 — 972 — — 976

Common share repurchases and forfeitures ( 69,371 ) ( 1 ) — ( 462 ) — — ( 463 )

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

Balance at September 30, 2022 165,453,584 $ 1,654 $ ( 5,640,295 ) $ 4,554,358 $ 2,534,688 $ 1,513 $ 1,451,918

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data)

Common Shares Additional

Capital Cumulative

Available for

Shareholders Cumulative

Comprehensive

Income (Loss)

Shares Common

Shares Cumulative

Distributions

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

8 unchanged sentences

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

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

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

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

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

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

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

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

2 unchanged sentences

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Loss on asset impairment, net 9,720 2,110

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

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

Unrealized gains on equity securities, net ( 2,737 ) ( 20,367 )

Equity in earnings of an investee ( 4,277 ) ( 50 )

Gain on sale of real estate ( 44,235 ) ( 10,934 )

5 unchanged sentences

Due to related persons ( 8,692 ) ( 16,483 )

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

Net cash provided by operating activities 147,114 1,002

Cash flows from investing activities:

21 unchanged sentences

Total cash and cash equivalents and restricted cash $ 78,137 $ 914,189

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 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 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:

At September 30, 2022, we owned, directly and through our subsidiaries, 242 hotels and 769 net lease properties.

At September 30, 2022, all 242 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 200 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 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.

At September 30, 2022, we owned 769 net lease properties with 178 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

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.

Basis of Presentation

13 unchanged sentences

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 $ 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 were $ 166,075 and $ 113,705 as of September 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 $ 35,968 and $ 42,432 as of September 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.

7 unchanged sentences

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

We reduced rental income by $ 1,712 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.

We reduced rental income by $ 1,845 and $ 905 for the three months ended September 30, 2022 and 2021, respectively, and reduced rental income by $ 5,530 and $ 3,087 for the nine months ended September 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 $ 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.

Due from related persons includes $ 10,840 and $ 20,655 and other assets, net, includes $ 31,176 and $ 26,881 of straight line rent receivables at September 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 $ 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.

We recorded percentage rent of $ 2,279 and $ 555 for the three months ended September 30, 2022 and 2021, respectively, and $ 3,421 and $ 944 for the nine months ended September 30, 2022 and 2021, respectively.

We had deferred estimated percentage rent of $ 830 and $ 1,849 for the three months ended September 30, 2022 and 2021, respectively, and $ 6,168 and $ 4,827 for the nine months ended September 30, 2022 and 2021, respectively.

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

3 unchanged sentences

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.

For the three and nine months ended September 30, 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 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.

At September 30, 2022, we owned 242 hotels with an aggregate of 40,563 rooms or suites and 769 service-oriented retail properties with an aggregate of 13,412,371 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 $ 9,715,649 , including $ 142,972 related to properties classified as held for sale as of September 30, 2022.

We made capital expenditures at certain of our properties of $ 73,952 during the nine months ended September 30, 2022.

During the three months ended September 30, 2022, we acquired the previously leased land at one of our hotels for a purchase price of $ 2,765 , including acquisition related costs of $ 51 .

This acquisition was accounted for as an asset acquisition and the entire purchase price was allocated to land.

During the nine months ended September 30, 2022, we sold 80 properties for an aggregate sales price of $ 531,737 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions 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 six months ended June 30, 2022

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Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

Properties sold during the nine months ended September 30, 2022

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

2 unchanged sentences

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

Q3 2022 Hotels 5 603 29,700 ( 186 )

Q3 2022 Net Lease 6 14,056 1,105 22

80 7,782 / 129,548

$ 531,737 $ 44,235

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.

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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.

As of September 30, 2022, we had 22 hotels with 3,040 rooms and an aggregate carrying value of $ 133,239 classified as held for sale and three net lease properties with 8,575 square feet and an aggregate carrying value of $ 1,038 classified as held for sale.

From October 1, 2022 through November 1, 2022, we sold one hotel with 120 rooms and a carrying value of $ 4,514 for a sales price of $ 6,025 .

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

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.

As of November 1, 2022, we have entered into agreements to sell 16 Marriott branded hotels and four Sonesta branded hotels with an aggregate of 2,701 rooms for an aggregate sales price of $ 162,470 , excluding closing costs.

These pending sales are subject to conditions;

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

We continue to market one additional hotel with 219 rooms and three net lease properties with 8,575 square feet for sale.

We expect the sale of a majority of these hotels to be completed by the end of the first quarter of 2023.

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

Management Agreements and Leases

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.

As of September 30, 2022, we owned 242 hotels which were included in six operating agreements and 769 service oriented retail properties net leased to 178 tenants.

We do not operate any of our properties.

1 unchanged sentence

Sonesta agreement.

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.

As of September 30, 2022, Sonesta managed 40 of our full-service hotels, 111 of our extended stay hotels, and 49 of our select service hotels pursuant to management agreements for all of the hotels.

The hotels Sonesta managed for us comprised approximately 47.7 % of our total historical real estate investments.

9 unchanged sentences

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.

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Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

• 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.

2 unchanged sentences

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

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

We sold 61 of the Sale Hotels as of September 30, 2022 for an aggregate sales price of $ 517,568 , excluding closing costs .

We recognized a net gain of $ 44,682 and the total annual owner’s priority return was reduced by $ 73,851 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.

As of September 30, 2022, the total annual owner’s priority return for the remaining six Sale Hotels we then owned was $ 11,819 as of that date.

Subsequent to September 30, 2022, we sold an additional one Sale Hotel for an aggregate sales price of $ 6,025 , excluding closing costs, and the total annual owner’s priority return was reduced by $ 902 in connection with this sale.

As of November 1, 2022, we had agreements to sell an additional four Sale Hotels for an aggregate sales price of $ 25,170 and having a net book value of $ 22,996 and a total annual owner’s priority return of $ 5,408 as of September 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.

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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 $ 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.

Our Sonesta hotels generated net operating cash flow of $ 67,765 and $ 40,728 for the three months ended September 30, 2022 and 2021, respectively, and net operating cash flow of $ 148,217 and $ 28,531 for the nine months ended September 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 $ 31,136 and $ 26,640 for the three months ended September 30, 2022 and 2021, respectively, and $ 87,615 and $ 59,962 for the nine months ended September 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 $ 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 284 and $ 184 for the three months ended September 30, 2022 and 2021, respectively, and $ 840 and $ 1,571 for the nine months ended September 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 $ 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.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 56,297 and $ 76,035 during the nine months ended September 30, 2022 and 2021, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 3,378 and $ 6,083 , respectively.

We owed Sonesta $ 7,252 and $ 5,016 for capital expenditures and other reimbursements at September 30, 2022 and December 31, 2021, respectively.

Sonesta owed us $ 21,213 and $ 4,592 in owner’s priority returns as of September 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 or six months ended June 30, 2022 or 2021.

No FF&E escrow deposits were required during either of the three or nine months ended September 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 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.

As of September 30, 2022 and December 31, 2021, we had advanced $ 49,218 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 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 .

As of September 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 September 30, 2022, we are to be paid an annual owner’s priority return of $ 12,776 .

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 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.

We realized returns of $ 3,116 and $ 2,768 during the three months ended September 30, 2022 and 2021, respectively, and $ 9,504 and $ 6,634 for the nine months ended September 30, 2022 and 2021, respectively, under our Hyatt agreement.

We incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 12,611 during the nine months ended September 30, 2022, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 757 .

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

Radisson agreement .

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 .

As of September 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

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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.

Radisson has provided us with a $ 22,000 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 certain of the hotels we currently expect to occur in 2023.

We realized returns of $ 2,873 and $ 1,822 during the three months ended September 30, 2022 and 2021, respectively, and $ 6,347 and $ 11,878 for the nine months ended September 30, 2022 and 2021, respectively, under our Radisson agreement.

We incurred capital expenditures of $ 2,135 and $ 2,433 for the hotels included in our Radisson agreement for the three and nine months ended September 30, 2022, respectively.

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

Marriott agreement .

As of June 30, 2022, Marriott managed 16 of our hotels.

As of September 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, 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.

On January 18, 2022, the arbitration concluded.

As of November 1, 2022, we have entered agreements to sell these 16 hotels for an aggregate sales price of $ 137,300 , excluding closing costs.

These pending sales are subject to conditions;

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

Our Marriott hotels generated net operating cash flow of $ 3,818 and $ 4,685 during the three months ended September 30, 2022 and 2021, respectively, and net operating cash flow of $ 7,411 and a net operating cash flow deficit of $ 7,895 during the nine months ended September 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 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.

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

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

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

Our IHG hotel generated net

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.

Our IHG hotel generated net operating cash flow of $ 1,273 and $ 962 during the three months ended September 30, 2022 and 2021, respectively, and net operating cash flow of $ 2,610 and a cash flow deficit of $ 384 for the nine months ended September 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 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.

As of September 30, 2022, we owned 769 service-focused retail net lease properties with 13,412,371 square feet with leases requiring annual minimum rents of $ 372,601 with a weighted (by annual minimum rents) average remaining lease term of 8.8 years.

The portfolio was 98.1 % leased by 178 tenants operating under 136 brands in 21 distinct industries.

TA is our largest tenant, leasing 29.2 % of our total historical real estate investments as of June 30, 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 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 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 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 $ 2,839 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

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(dollars in thousands, except share data)

TA is our largest tenant, leasing 29.2 % of our total historical real estate investments as of September 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 and $ 13,212 of deferred rent to us for each of the three and nine months ended September 30, 2022 and 2021, respectively.

The remaining balance of previously deferred rents was $ 8,807 and $ 22,018 as of September 30, 2022 and December 31, 2021, respectively.

We recognized rental income from our TA leases of $ 64,011 and $ 62,116 for the three months ended September 30, 2022 and 2021, respectively, and $ 188,280 and $ 186,357 for the nine months ended September 30, 2022 and 2021, respectively.

Rental income was reduced by $ 3,240 and $ 3,267 for the three months ended September 30, 2022 and 2021, respectively, and $ 9,825 and $ 9,789 for the nine months ended September 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 September 30, 2022 and December 31, 2021, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $ 33,874 and $ 48,168 , respectively.

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

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 recognized percentage rent of $ 1,861 during the three and nine months ended September 30, 2022 under our TA leases.

In addition, we had aggregate deferred percentage rent under our TA leases of $ 831 and $ 1,849 for the three months ended September 30, 2022 and 2021, respectively, and $ 6,168 and $ 4,827 for the nine months ended September 30, 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 the three and six months ended June 30, 2022 or 2021.

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

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

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

We recognized rental income from our net lease properties (excluding TA) of $ 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 recognized rental income from our net lease properties (excluding TA) of $ 33,787 and $ 36,608 for the three months ended September 30, 2022 and 2021, respectively, which included $ 1,395 and $ 2,361 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis, and $ 102,669 and $ 99,594 for the nine months ended September 30, 2022 and 2021, respectively, which included $ 4,296 and $ 6,702 , 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.

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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 $ 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 June 30, 2022.

We recorded reserves for uncollectable amounts of $ 352 for the three months ended September 30, 2022 and reduced our reserves for uncollectable amounts by $ 315 for the nine months ended September 30, 2022 based on our assessment of collectability and cash received from certain tenants.

We reduced our reserves for uncollectable amounts by $ 5,373 for the three months ended September 30, 2021 and recorded reserves for uncollectable amounts of $ 588 for the nine months ended September 30, 2021 based on our assessment of collectability and cash received from certain tenants.

We had reserves for uncollectable rents of $ 7,755 and $ 15,519 as of September 30, 2022 and December 31, 2021, respectively, included in other assets in our condensed consolidated balance sheets.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Other Investments

Equity method investment

As of June 30, 2022, we owned approximately 34 % of Sonesta’s outstanding common stock.

As of September 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 June 30, 2022 and December 31, 2021, our investment in Sonesta had a carrying value of $ 109,682 and $ 62,687 , respectively.

As of September 30, 2022 and December 31, 2021, our investment in Sonesta had a carrying value of $ 113,168 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 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 amortization of the basis difference of $ 65 in each of the three months ended September 30, 2022 and 2021 and $ 195 in each of the nine months ended September 30, 2022 and 2021.

We recognized income of $ 2,866 and $ 2,158 related to our investment in Sonesta for the three months ended September 30, 2022 and 2021, respectively, and income of $ 4,472 and $ 50 for the nine months ended September 30, 2022 and 2021, respectively.

These amounts are included in equity in earnings 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 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.

We reduced hotel operating expenses by $ 621 for each of the three months ended September 30, 2022 and 2021, respectively, and $ 1,863 for each of the nine months ended September 30, 2022 and 2021, respectively, for amortization of this liability.

As of September 30, 2022 and December 31, 2021, the unamortized balance of this liability was $ 35,584 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.

During the nine months ended September 30, 2022, we funded an aggregate of $ 45,470 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 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.

As of both September 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 $ 63,896 and $ 61,159 as of September 30, 2022 and December 31, 2021, respectively.

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

We recorded unrealized gains of $ 23,056 and $ 24,348 for the three months ended September 30, 2022 and 2021, respectively, and unrealized gains of $ 2,737 and $ 20,367 for the nine months ended September 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 June 30, 2022 were:

Our principal debt obligations at September 30, 2022 were:

(1) $ 95,000 of outstanding borrowings under our $ 800,000 revolving credit facility;

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

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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

As of September 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 had 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 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.

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

As of September 30, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 5.26 %.

The weighted average annual interest rate for borrowings under our revolving credit facility was 4.37 % for the three months ended September 30, 2022, 3.36 % for the nine months ended September 30, 2022 and 2.85 % for both the three and nine months ended September 30, 2021.

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

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• 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;

• 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 credit agreement calculated using pro forma projections as defined in the credit 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.

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• 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 ;

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

• 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.

1 unchanged sentence

• 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.

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 nine months ended September 30, 2022, which represented the write off of a portion of deferred financing fees.

On October 4, 2022, we further amended our credit agreement and exercised our remaining option to extend the maturity date of our revolving credit facility by six months to July 15, 2023.

Pursuant to the amendment:

• we agreed to maintain minimum liquidity of $ 600,000 until we repay or refinance our $ 500,000 of 4.5 % senior notes due in June 2023 and maintain at least $ 150,000 of liquidity thereafter;

• restrictions on paying common dividends and issuing secured debt previously agreed to during the existing waiver period were removed, subject to certain conditions.

Our revolving credit facility continues to be secured by 73 properties with an undepreciated book value of $ 1,573,608 as of September 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.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 201 during the nine months ended September 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We believe we were in compliance with the terms and conditions of our credit agreement and our unsecured senior notes indentures and their supplements as of September 30, 2022.

Shareholders' Equity

Distributions

During the six months ended June 30, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

During the nine months ended September 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

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

July 14, 2022 July 25, 2022 August 18, 2022 0.01 1,651

$ 0.03 $ 4,953

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 October 13, 2022, we declared a regular quarterly distribution to common shareholders of record as of October 24, 2022 of $ 0.20 per share, or $ 33,091 .

We expect to pay this amount on or about November 17, 2022.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

On September 14, 2022, we awarded under our equity compensation plan an aggregate of 384,500 of our common shares, valued at $ 6.75 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other officers and employees of RMR.

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.

During the three and nine months ended September 30, 2022, we purchased an aggregate of 68,371 and 68,849 of our common shares, respectively, valued at weighted average share prices of $ 6.71 and $ 6.72 per share, respectively.

These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of officers and certain other current and former employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

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 dates.

Business and Property Management Agreements with RMR

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(1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, excluding properties leased to TA, the office building component of one of our hotels and 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 $ 9,305 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.

We recognized net business management fees payable to RMR of $ 8,272 and $ 10,794 for the three months ended September 30, 2022 and 2021, respectively, and $ 27,455 and $ 31,836 for the nine months ended September 30, 2022 and 2021, respectively.

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

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REIT Hotel Index.

We recognized property management and construction supervision fees payable to RMR of $ 1,628 and $ 1,384 for the three months ended September 30, 2022 and 2021, respectively, and $ 4,526 and $ 3,267 for the nine months ended September 30, 2022 and 2021, respectively.

Of those amounts, for the three months ended September 30, 2022 and 2021, $ 975 and $ 1,002 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 653 and $ 382 , respectively, of construction and supervision fees were capitalized for the three months ended September 30, 2022 and 2021.

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

For the nine months ended September 30, 2022 and 2021, $ 3,007 and $ 2,683 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,520 and $ 584 , 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.

SERVICE PROPERTIES TRUST

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(dollars in thousands, except share data)

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 $ 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 reimbursed RMR $ 892 and $ 679 for these expenses and costs for the three months ended September 30, 2022 and 2021, respectively, and $ 2,331 and $ 2,016 for the nine months ended September 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).

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Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

See Note 8 for information relating to the annual share awards we made in September 2022 to our officers and certain other officers and employees of RMR and common shares we purchased from our officers and certain other current and former officers and employees of RMR 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 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 June 30, 2022, we owned approximately 8.0 % of TA’s outstanding shares of common stock.

As of September 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 June 30, 2022, beneficially owned (including through RMR) approximately 4.5 % of TA’s outstanding shares of common stock.

Portnoy also serves as the chair of the board of directors and as a managing director of TA and, as of September 30, 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.

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RMR also provides certain services to Sonesta.

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

As of September 30, 2022, we owned approximately 34 % of Sonesta which managed 200 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Our Manager, RMR.

2 unchanged sentences

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.

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Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.

During the three months ended June 30, 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.

During the three months ended September 30, 2022, we recognized an income tax expense of $ 390 , which includes $ 318 of state tax expense and $ 72 of foreign tax expense.

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

During the nine months ended September 30, 2022, we recognized an income tax expense of $ 1,558 , which includes $ 1,153 of state tax expense and $ 405 of foreign tax expense.

During the nine months ended September 30, 2021, we recognized an income tax expense of $ 1,009 , which includes $ 698 of state tax expense and $ 309 of foreign tax expense.

SERVICE PROPERTIES TRUST

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

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

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General and administrative — — 11,293 11,293

Transaction related costs — — 743 743

Loss on asset impairment, net 867 305 — 1,172

Total expenses 374,913 49,550 11,293 435,756

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

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

(Loss) gain on sale of real estate, net ( 188 ) 24 — ( 164 )

Unrealized gains on equity securities, net — — 23,056 23,056

Interest income 6 28 1,408 1,442

Interest expense — — ( 81,740 ) ( 81,740 )

Loss on early extinguishment of debt

— — ( 791 ) ( 791 )

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

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Net income (loss) $ 25,358 $ 48,300 $ ( 66,158 ) $ 7,500

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

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Gain (loss) on sale of real estate, net 44,682 ( 447 ) — 44,235

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

Unrealized gains on equity securities, net — — 2,737 2,737

Interest income 7 28 2,700 2,735

1 unchanged sentence

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 (loss) before income taxes and equity in earnings of an investee 50,425 142,805 ( 296,921 ) ( 103,691 )

Income tax expense — — ( 1,558 ) ( 1,558 )

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Net income (loss) $ 50,425 $ 142,805 $ ( 294,202 ) $ ( 100,972 )

As of June 30, 2022

As of September 30, 2022

Hotels Net Lease Corporate Consolidated

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(dollars in thousands, except share data)

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

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Transition related costs — — 3,149 3,149

Loss on asset impairment — 899 — 899

Total expenses 351,298 62,535 17,380 431,213

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Interest expense — — ( 92,458 ) ( 92,458 )

Income (loss) before income taxes and equity in losses of an investee ( 24,723 ) 35,222 ( 102,133 ) ( 91,634 )

Income tax expense — — ( 211 ) ( 211 )

Income (loss) before income taxes and equity in earnings of an investee ( 12,923 ) 36,283 ( 85,287 ) ( 61,927 )

Income tax benefit — — 55 55

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

Net income (loss) $ ( 12,923 ) $ 36,283 $ ( 83,074 ) $ ( 59,714 )

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

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General and administrative — — 40,840 40,840

Acquisition related costs — — — —

Transition costs 23,159 — 5,775 28,934

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

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

Income (loss) before income taxes and equity in earnings of an investee ( 148,724 ) 102,859 ( 298,990 ) ( 344,855 )

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

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

Equity in earnings of an investee — — 50 50

Net income (loss) $ ( 148,724 ) $ 102,859 $ ( 299,949 ) $ ( 345,814 )

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Fair Value of Assets and Liabilities

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.

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

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(dollars in thousands, except share data)

June 30, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

Fair Value at Reporting Date Using

Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Recurring Fair Value Measurement Assets:

Investment in TA (Level 1) (1)

Investment in TA (1)

$ 63,896 $ 63,896 $ — $ —

Non-Recurring Fair Value Measurement Assets:

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

Assets of properties held for sale (2)

$ 20,553 $ — $ 20,553 $ —

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

(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.

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.

(2) We recorded a loss on impairment of $ 7,305 during the nine months ended September 30, 2022 and $ 17,741 during the twelve months ended December 31, 2021 to reduce the carrying values of three of the 22 hotels classified as held for sale as of September 30, 2022 and three net lease properties classified as held for sale as of September 30, 2022, with an aggregate carrying value of $ 20,553 , to 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).

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

At June 30, 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

At September 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:

September 30, 2022 December 31, 2021

Carrying Value (1)

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

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).

At September 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