What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-03 · 212 added, 361 removed, 334 unchanged (63% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30,

2023 December 31,

15 unchanged sentences

LIABILITIES AND SHAREHOLDERS’ EQUITY

Revolving credit facility $ 95,000 $ 1,000,000

Senior unsecured notes, net $ 5,158,504 $ 5,655,530

Mortgage notes payable, net 551,789 —

Accounts payable and other liabilities 379,516 425,960

7 unchanged sentences

Additional paid in capital 4,555,328 4,554,861

4,554,358 4,552,558

Cumulative other comprehensive income 2,169 2,383

Cumulative net income available for common shareholders 2,529,229 2,503,279

2,534,688 2,635,660

Cumulative common distributions ( 5,706,476 ) ( 5,673,386 )

( 5,640,295 ) ( 5,635,342 )

Total shareholders’ equity 1,381,905 1,388,792

Total liabilities and shareholders’ equity $ 7,482,166 $ 7,488,191

$ 7,632,713 $ 9,153,315

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

2 unchanged sentences

(amounts in thousands, except per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Hotel operating revenues $ 334,796 $ 297,406

9 unchanged sentences

Other operating income:

(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

Gain on sale of real estate, net 41,898 5,548

Unrealized gains (losses) on equity securities, net 49,430 ( 10,260 )

Interest income 2,786 273

3 unchanged sentences

Income (loss) before income taxes and equity in earnings of an investee 26,391 ( 118,410 )

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

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

Income tax benefit (expense) 3,780 ( 695 )

Equity in losses of an investee ( 4,221 ) ( 717 )

Net income (loss) 25,950 ( 119,822 )

Other comprehensive income:

Equity interest in investee’s unrealized gains 684 5 734 5

Other comprehensive income 684 5 734 5

Equity interest in investee’s unrealized (losses) gains ( 214 ) 4

Other comprehensive (loss) income ( 214 ) 4

Comprehensive income (loss) $ 25,736 $ ( 119,818 )

Weighted average common shares outstanding (basic and diluted) 164,867 164,667

Net income (loss) per common share (basic and diluted) $ 0.05 $ ( 0.36 ) $ ( 0.61 ) $ ( 2.10 )

Net loss per common share (basic and diluted) $ 0.16 $ ( 0.73 )

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

12 unchanged sentences

Balance at December 31, 2022 165,452,566 $ 1,655 $ ( 5,673,386 ) $ 4,554,861 $ 2,503,279 $ 2,383 $ 1,388,792

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

Equity in unrealized gains of investees — — — — — 4 4

Net income — — — — 25,950 — 25,950

Equity in unrealized losses of investees — — — — — ( 214 ) ( 214 )

Common share grants — — — 514 — — 514

Common share repurchases ( 4,971 ) — — ( 46 ) — — ( 46 )

Common share forfeitures ( 1,600 ) — — ( 1 ) ( 1 )

1 unchanged sentence

Balance at March 31, 2023 165,445,995 $ 1,655 $ ( 5,706,476 ) $ 4,555,328 $ 2,529,229 $ 2,169 $ 1,381,905

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

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

SERVICE PROPERTIES TRUST

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, 2021 165,092,333 $ 1,651 $ ( 5,635,342 ) $ 4,552,558 $ 2,635,660 $ 779 $ 1,555,306

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

Common share grants — — — 380 — — 380

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

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

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

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

Common share repurchases and forfeitures ( 15,079 ) — — ( 190 ) — — ( 190 )

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

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

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

Equity in unrealized gains of investees — — — — — 4 4

Common share grants — — — 462 — — 462

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

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

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

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

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

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

2 unchanged sentences

(dollars in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 100,972 ) $ ( 345,814 )

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

Net income (loss) $ 25,950 $ ( 119,822 )

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

Depreciation and amortization 100,039 104,113

3 unchanged sentences

Loss on asset impairment, net — 5,500

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

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

Unrealized (gains) losses on equity securities, net ( 49,430 ) 10,260

Equity in losses of an investee 4,221 717

Gain on sale of real estate ( 41,898 ) ( 5,548 )

5 unchanged sentences

Due to related persons ( 2,325 ) 603

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

Net cash provided by (used in) operating activities 12,373 ( 11,983 )

Cash flows from investing activities:

Real estate acquisitions and deposits ( 2,765 ) ( 7,649 )

Real estate improvements ( 28,551 ) ( 26,561 )

1 unchanged sentence

Net proceeds from sale of real estate 144,361 66,218

Investment in Sonesta ( 45,470 ) ( 25,443 )

Net cash provided by (used in) investing activities 396,980 ( 87,352 )

Net cash provided by investing activities 114,252 38,870

Cash flows from financing activities:

Proceeds from mortgage notes payable, net of discounts 576,946 —

Repayment of mortgage notes payable ( 163 ) —

Repayment of senior unsecured notes ( 500,000 ) —

Borrowings under revolving credit facility 20,000 984,027

Repayments of revolving credit facility ( 925,000 ) ( 62,451 )

Deferred financing costs ( 19,856 ) ( 82 )

1 unchanged sentence

Distributions to common shareholders ( 33,090 ) ( 1,651 )

Net cash (used in) provided by financing activities ( 1,413,375 ) 909,083

(Decrease) increase in cash and cash equivalents and restricted cash ( 869,281 ) 822,733

Net cash provided by (used in) financing activities 23,791 ( 1,733 )

Increase in cash and cash equivalents and restricted cash 150,416 25,154

Cash and cash equivalents and restricted cash at beginning of period 45,420 947,418

5 unchanged sentences

Total cash and cash equivalents and restricted cash $ 195,836 $ 972,572

For the Nine Months Ended September 30,

Supplemental cash flow information:

8 unchanged sentences

Organization and Basis of Presentation

Service Properties Trust, or we, us or our, is a real estate investment trust, or REIT, organized on February 7,

1995 under the laws of the State of Maryland, which invests in hotels and service-focused retail net lease properties.

At September 30, 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 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.

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

At March 31, 2023, we owned, directly and through our subsidiaries, 220 hotels and 765 net lease properties.

Basis of Presentation

3 unchanged sentences

We believe the disclosures made are adequate to make the information presented not misleading.

However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021, or our 2021 Annual Report.

However, the accompanying condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Annual Report.

In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included.

7 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 $ 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 were 156,423 and $ 142,542 as of March 31, 2023 and December 31, 2022, respectively, and consist primarily of our TRSs’ investment in Sonesta Holdco Corporation’s common stock and amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were 105,826 and $ 82,454 as of March 31, 2023 and December 31, 2022, 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 $ 1,845 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.

We reduced rental income by $ 2,448 and $ 1,973 for the three months ended March 31, 2023 and 2022, respectively, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TravelCenters of America Inc., or 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 $ 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.

Due from related persons includes $ 4,281 and $ 7,522 and other assets, net, includes $ 33,040 and $ 32,247 of straight line rent receivables at March 31, 2023 and December 31, 2022, respectively.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 $ 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.

We recorded percentage rent of $ 343 and $ 756 for the three months ended March 31, 2023 and 2022, respectively.

We had deferred estimated percentage rent of $ 2,385 and $ 2,499 for the three months ended March 31, 2023 and 2022, 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 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.

For the three months ended March 31, 2023 and 2022, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Real Estate Properties

At September 30, 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.

At March 31, 2023, we owned 220 hotels with an aggregate of 37,527 rooms or suites and 765 service-oriented retail properties with an aggregate of 13,319,743 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 $ 9,541,018 , including $ 1,377 related to properties classified as held for sale as of March 31, 2023.

We made capital expenditures at certain of our properties of $ 22,278 during the three months ended March 31, 2023.

During the three months ended March 31, 2023, we sold 18 properties for an aggregate sales price of $ 157,230 , 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).

SERVICE PROPERTIES TRUST

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

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 )

Quarter Sold Property Type Number of Properties Rooms or Suites Gross Sales Price Gain on Sale

Properties sold during the three months ended March 31, 2023

Q1 2023 Hotels 18 2,526 $ 157,230 $ 41,898

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

80 7,782 / 129,548

$ 531,737 $ 44,235

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 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.

As of March 31, 2023, we had four net lease properties with 9,667 square feet and an aggregate carrying value of $ 1,377 classified as held for sale.

From April 1, 2023 through May 5, 2023, we sold two net lease properties with 2,384 square feet and a carrying value of $ 648 for a sales price of $ 620 .

We continue to market two net lease properties with 7,283 square feet for sale.

See Note 5 for further information on our property sales.

Management Agreements and Leases

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.

As of March 31, 2023, we owned 220 hotels which were included in four operating agreements and 765 service oriented retail properties net leased to 179 tenants.

We do not operate any of our properties.

Hotel agreements

Sonesta agreement.

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.

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

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

As of that date, we owned 261 hotels managed by Sonesta and 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.

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

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

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

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

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

At March 31, 2023, all 220 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 194 hotels), Hyatt Hotels Corporation, or Hyatt ( 17 hotels), Radisson Hospitality, Inc., or Radisson ( eight hotels), and InterContinental Hotels Group, plc, or IHG ( one hotel).

At March 31, 2023, we owned 765 net lease properties with 179 tenants, including 177 travel centers leased to TA, our largest tenant.

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

SERVICE PROPERTIES TRUST

1 unchanged sentence

(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.

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 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 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;

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

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

Hotel agreements

Sonesta agreement.

As of March 31, 2023, Sonesta managed 39 of our full-service hotels, 111 of our extended stay hotels and 44 of our select service hotels pursuant to management agreements for all of the hotels.

The hotels Sonesta managed for us comprised approximately 48.4 % of our total historical real estate investments.

We sold 65 Sonesta branded hotels during the calendar year ended December 31, 2022, and we sold an additional two Sonesta branded hotels during the three months ended March 31, 2023.

See Note 4 for further information regarding our disposition activity.

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 $ 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.

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, reserve established for the regular refurbishment of our hotels, or FF&E reserve, escrows and Sonesta’s incentive fee, if applicable.

We realized returns of $ 30,237 and $ 3,029 during the three months ended March 31, 2023 and 2022, respectively, under our Sonesta agreement.

Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third-party reservation transmission fees of $ 26,136 and $ 23,797 for the three months ended March 31, 2023 and 2022, 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 $ 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 207 and $ 285 for the three months ended March 31, 2023 and 2022, 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 $ 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.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 17,643 and $ 19,067 during the three months ended March 31, 2023 and 2022, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 1,059 and $ 1,144 , respectively.

Our annual priority return under our Sonesta agreement as of March 31, 2023 was $ 331,469 .

We owed Sonesta $ 5,555 and $ 4,633 for capital expenditures and other reimbursements at March 31, 2023 and December 31, 2022, respectively.

Sonesta owed us $ 21,403 and $ 2,975 in owner’s priority returns and other amounts as of March 31, 2023 and December 31, 2022, 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 nine months ended September 30, 2022 or 2021.

Our agreement with Sonesta requires 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 the three months ended March 31, 2023 or 2022.

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 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.

As of March 31, 2023 and December 31, 2022, we had advanced $ 47,990 and $ 48,580 , 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 hotels we have sold.

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.

Hyatt agreement.

As of March 31, 2023, 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, 2023, we are to be paid an annual owner’s priority return of $ 12,773 .

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 which we currently expect to occur by the end of 2023.

We realized returns of $ 2,323 and $ 1,863 during the three months ended March 31, 2023 and 2022, respectively, under our Hyatt agreement.

We did not incur capital expenditures for any of the hotels included in our Hyatt agreement during the three months ended March 31, 2023.

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 .

SERVICE PROPERTIES TRUST

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(dollars in thousands, except share data)

Hyatt agreement.

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.

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 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 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.

As of March 31, 2023, 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 .

Radisson has provided us with a $ 22,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us that became effective on January 1, 2023, subject to adjustment for planned renovations of certain of the hotels we currently expect to occur by the end of 2023.

We realized returns of $ 1,565 and $ 454 during the three months ended March 31, 2023 and 2022, respectively, under our Radisson agreement.

During the three months ended March 31, 2023, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for the period, and we reduced hotel operating expenses by $ 335 to record the guaranteed amount of the shortfall due from Radisson.

The available balance of the guaranty was $ 21,665 as of March 31, 2023.

We incurred capital expenditures of $ 2,375 for the hotels included in our Radisson agreement for the three months ended March 31, 2023 which resulted in an aggregate increase in our contractual owner’s priority returns of $ 143 .

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

Marriott agreement .

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.

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 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.

As of March 31, 2023, we have sold all 16 hotels previously managed by Marriott.

We realized net operating losses of $ 2,762 and realized returns of $ 323 during the three months ended March 31, 2023 and 2022, respectively, under our Marriott agreement.

We did not incur capital expenditures for any of the hotels included in our Marriott agreement during the three months ended March 31, 2023 or 2022.

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

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.

We realized returns of $ 763 and $ 130 during the three months ended March 31, 2023 and 2022, respectively under our IHG agreement.

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

Net lease portfolio

As of September 30, 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.

As of March 31, 2023, we owned 765 service-oriented retail net lease properties with 13,319,743 square feet with leases requiring annual minimum rents of $ 369,756 with a weighted (by annual minimum rents) average remaining lease term of 9.4 years.

The portfolio was 97.4 % leased by 179 tenants operating under 139 brands in 21 distinct industries.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(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.

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 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.

TA is our largest tenant, leasing 30.0 % of our total historical real estate investments as of March 31, 2023.

We lease to TA a total of 177 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, 2023.

In addition, TA was required to pay us previously deferred rent obligations in quarterly installments of $ 4,404 through January 31, 2023.

TA paid us the final quarterly installment owed to us in January 2023.

We recognized rental income from our TA leases of $ 62,141 and $ 62,038 for the three months ended March 31, 2023 and 2022, respectively.

Rental income was reduced by $ 3,241 and $ 3,344 for the three months ended March 31, 2023 and 2022, 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, 2023 and December 31, 2022, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 27,492 and $ 30,764 , respectively.

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

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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.

We did not recognize any percentage rent during the three months ended March 31, 2023 or 2022 under our TA leases.

We had aggregate deferred percentage rent under our TA leases of $ 2,385 and $ 2,391 for the three months ended March 31, 2023 and 2022, 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 nine months ended September 30, 2022 or 2021.

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

We did not fund any capital improvements to our properties that we leased to TA during either of the three months ended March 31, 2023 or 2022.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

On February 15, 2023, we and certain of our subsidiaries entered into a consent and amendment agreement, or the Consent Agreement, with TA and its subsidiary, TA Operating LLC, or together, the TCA Parties, and BP Products North America Inc., or BP, pursuant to which we and our applicable subsidiaries:

(1) consented to TA’s entering into an agreement and plan of merger, or the TA Merger Agreement, with BP and its merger subsidiary, pursuant to which BP will acquire TA in a merger transaction, or the TA Merger, for cash consideration of $ 86.00 per share of the outstanding shares of common stock, par value $ 0.001 per share, of TA, or the TA common shares, and to the consummation of the TA Merger and the other transactions contemplated by the TA Merger Agreement;

(2) agreed to amend and restate our subsidiaries’ existing lease and guaranty agreements with the applicable TCA Parties, effective at the time of the TA Merger;

and (3) agreed to sell to TA certain tradenames and trademarks associated with TA’s business that we or our applicable subsidiaries own at their current book value of $ 89,400 , effective at the time of the TA Merger.

The TA Merger is subject to various customary conditions to closing, including the approval of TA stockholders owning a majority of the TA common shares outstanding, as well as regulatory approvals.

The parties currently expect that the TA Merger will be completed during the second quarter of 2023.

Pursuant to the amended and restated lease agreements to be entered into at the effective time of the TA Merger, or the A&R Leases, for 176 of our travel center properties, the aggregate annual minimum rent due to our applicable subsidiaries will be $ 254,000 , with annual 2 % increases throughout the initial term and any renewal terms of the A&R Leases, and there will be no percentage rent requirement.

The A&R Leases will each have an initial term of 10 years, with five 10-year extension options, and TA will prepay $ 188,000 of rent under the A&R Leases at the effective time of the TA Merger and will receive monthly rent credits totaling $ 25,000 per year over the 10-year initial term of the A&R Leases.

In addition, TA will have a right of first offer with respect to certain potential sales of travel center properties included in the A&R Leases.

Pursuant to the amended and restated guaranty amendments to be entered into at the effective time of the TA Merger, or the A&R Guarantees, BP Corporation North America Inc.

will guarantee payment under each of the A&R Leases.

BP Corporation North America Inc.’s obligations under the A&R Guarantees will be limited by an initial aggregate cap of approximately $ 3,040,000 .

For more information regarding our relationship with TA, including the TA Merger and related transactions, see Notes 6 and 10.

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

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

We recognized rental income from our net lease properties (excluding TA) of $ 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 recognized rental income from our net lease properties (excluding TA) of $ 32,272 and $ 34,320 for the three months ended March 31, 2023 and 2022, respectively, which included $ 793 and $ 1,371 , 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 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.

We recorded reserves for uncollectable amounts of $ 3,540 for the three months ended March 31, 2023 and reduced our reserves for uncollectable amounts and increased rental income by $ 507 for the three months ended March 31, 2022 based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $ 11,209 and $ 7,697 as of March 31, 2023 and December 31, 2022, respectively, included in other assets in our condensed consolidated balance sheets.

SERVICE PROPERTIES TRUST

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Equity method investment

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

As of both March 31, 2023 and December 31, 2022, we owned approximately 34 % of Sonesta’s outstanding common stock.

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

As of September 30, 2022 and December 31, 2021, our investment in Sonesta had a carrying value of $ 113,168 and $ 62,687 , respectively.

As of both March 31, 2023 and December 31, 2022, our investment in Sonesta had a carrying value of $ 108,182 and $ 112,617 , 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 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 amortization of the basis difference of $ 65 in each of the three months ended March 31, 2023 and 2022.

We recognized losses of $ 4,156 and $ 652 related to our investment in Sonesta for the three months ended March 31, 2023 and 2022, respectively.

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

We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta.

This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight line basis through January 31, 2037, as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income (loss).

We reduced hotel operating expenses by $ 621 for each of the three months ended September 30, 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.

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.

We reduced hotel operating expenses by $ 621 for each of the three months ended March 31, 2023 and 2022, respectively, for amortization of this liability.

As of March 31, 2023 and December 31, 2022, the unamortized balance of this liability was $ 34,342 and $ 34,963 , respectively.

In 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, New York.

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

Investment in equity securities

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 September 30, 2022 were:

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

and (2) $ 5,700,000 aggregate outstanding principal amount of senior unsecured notes.

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

As of both March 31, 2023 and December 31, 2022, we owned 1,184,797 shares of TA common stock, representing approximately 7.8 % 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 $ 102,485 and $ 53,055 as of March 31, 2023 and December 31, 2022, respectively.

Our historical cost basis for these shares was $ 24,418 as of both March 31, 2023 and December 31, 2022.

We recorded an unrealized gain of $ 49,430 and an unrealized loss of $ 10,260 for the three months ended March 31, 2023 and March 31, 2022, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

In connection with the TA Merger Agreement, we entered into a voting agreement, or the Voting Agreement, with BP, pursuant to which, among other things, we agreed to vote all of our TA common shares in favor of the TA Merger and against any alternative acquisition proposal, including any superior proposal, as defined.

We also agreed not to sell or transfer our TA common shares while the Voting Agreement remains in effect.

Our obligations under the Voting Agreement terminate upon the earliest to occur of the effective time of the TA Merger, the valid termination of the TA Merger Agreement or the effective date of a written agreement by us and BP to terminate the Voting Agreement.

See Notes 5 and 10 for further information regarding our relationships, agreements and transactions with TA, including the TA Merger Agreement and related transactions, and Note 13 for further information regarding our investment in TA.

Our principal debt obligations at March 31, 2023 were:

(1) $ 5,200,000 aggregate outstanding principal amount of senior unsecured notes;

and (2) $ 610,037 aggregate outstanding principal amount of net lease mortgage notes.

We had no amounts outstanding under our revolving credit facility as of March 31, 2023.

SERVICE PROPERTIES TRUST

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(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 September 30, 2022.

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.

Our revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders and has a maturity date of July 15, 2023.

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

We also pay a facility fee, which was 30 basis points per annum at March 31, 2023, 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 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.

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:

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

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

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

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

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

• in order to exercise the first six month extension option under the credit agreement, we would have needed to be in compliance with the financial covenants under the 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.

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

Pursuant to the amendment:

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

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

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

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

As of March 31, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.36 %.

We had no borrowings outstanding under our revolving credit facility for the three months ended March 31, 2023.

The weighted average annual interest rate for borrowings under our revolving credit facility was 2.85 % for the three months ended March 31, 2022.

Our revolving credit facility is secured by 73 properties with an undepreciated book value of $ 1,560,880 as of March 31, 2023 to secure our obligations under the credit agreement.

Our debt agreements 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 debt agreements 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.

We believe we were in compliance with the terms and conditions of our debt agreements as of March 31, 2023.

On February 10, 2023, our wholly owned, special purpose bankruptcy remote, indirect subsidiary, SVC ABS LLC, or the Issuer, issued $ 610,200 in aggregate principal amount of net lease mortgage notes.

Net proceeds from this issuance were $ 550,564 after initial purchaser discounts and offering costs.

The Issuer is a separate legal entity and is the sole owner of its assets and liabilities.

The assets of the Issuer are not available to pay or otherwise satisfy obligations to the creditors of any owners or affiliates of the Issuer.

The Class A notes and the Class B notes require monthly principal repayments at an annualized rate of 0.50 % and 0.25 % of the balance outstanding, respectively, and the Class C notes require interest payments only, with balloon payments due at maturity.

The notes mature in February 2028 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in February 2026.

The notes are non-recourse and are secured by 308 net lease retail properties owned by the Issuer which require annual minimum rents of $ 65,381 and had a gross book value of $ 754,913 , as of March 31, 2023.

Our net lease mortgage notes are summarized below:

Note Class Principal Outstanding as of March 31, 2023

Coupon Rate Term (in years) Maturity

Class A $ 304,873 5.15 % 5 February 2028

Class B 172,964 5.55 % 5 February 2028

Class C 132,200 6.70 % 5 February 2028

Total / weighted average $ 610,037 5.60 %

On March 8, 2023, we redeemed at par all of our outstanding 4.50 % senior notes due in 2023 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 $ 44 in the three months ended March 31, 2023, which represented the unamortized issuance costs related to these notes.

SERVICE PROPERTIES TRUST

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(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.

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 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 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 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.

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 nine months ended September 30, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

During the three months ended March 31, 2023, 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 12, 2023 January 23, 2023 February 16, 2023 $ 0.20 $ 33,090

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 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.

On April 13, 2023, we declared a regular quarterly distribution to common shareholders of record as of April 24, 2023 of $ 0.20 per share, or approximately $ 33,090 .

We expect to pay this amount on or about May 18, 2023.

Share Purchases

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.

During the three months ended March 31, 2023, we purchased an aggregate of 4,971 of our common shares valued at a weighted average price of $ 9.28 per share, from certain 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.

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 the Nasdaq Stock Market LLC, or Nasdaq, on the purchase dates.

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 $ 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.

We recognized net business management fees payable to RMR of $ 8,385 and $ 9,878 for the three months ended March 31, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2023 and 2022, no incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2023 or 2022.

The actual amount of annual incentive fees for 2023, 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, 2023, and will be payable in January 2024.

1 unchanged sentence

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

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

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

REIT Hotel Index will continue to be used.

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

ceasing to publish the SNL U.S.

REIT Hotel Index.

We recognized property management and construction supervision fees payable to RMR 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We recognized property management and construction supervision fees payable to RMR of $ 1,412 and $ 1,663 for the three months ended March 31, 2023 and 2022, respectively.

Of those amounts, for the three months ended March 31, 2023 and 2022, $ 945 and $ 1,018 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 467 and $ 645 , respectively, of construction and supervision fees were capitalized for the three months ended March 31, 2023 and 2022.

The amounts capitalized are included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR 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 $ 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 reimbursed RMR $ 1,003 and $ 764 for these expenses and costs for the three months ended March 31, 2023 and 2022, respectively.

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

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

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Related Person Transactions

9 unchanged sentences

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 177 of our travel centers to TA under our TA leases.

As of September 30, 2022, we owned approximately 8.0 % of TA’s outstanding shares of common stock.

As of March 31, 2023, we owned approximately 7.8 % 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 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.

Sonesta is a private company and is controlled by one of our Managing Trustees, 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, 2023, beneficially owned 661,505 shares of TA common stock (including through RMR), representing approximately 4.4 % of TA’s outstanding shares of common stock.

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

Sonesta is a private company.

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

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

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

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

and as our Secretary.

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

RMR also provides certain services to Sonesta.

As of 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.

As of March 31, 2023, we owned approximately 34 % of Sonesta and Sonesta managed 194 of our hotels.

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

Our Manager, RMR.

1 unchanged sentence

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

In connection with the TA Merger Agreement, on February 15, 2023, RMR entered into a voting agreement with BP pursuant to which RMR agreed to vote all of its shares of TA common stock in favor of the TA Merger and against any alternative acquisition proposal, including any superior proposal, as defined in the TA Merger Agreement.

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2022 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.

2 unchanged sentences

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

During the three months ended September 30, 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.

During the three months ended March 31, 2023, we recognized an income tax benefit of $ 3,780 , which includes $ 2,297 of state tax benefit and $ 1,483 of foreign tax benefit.

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.

SERVICE PROPERTIES TRUST

3 unchanged sentences

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

For the Three Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 400,453 $ — $ — $ 400,453

Rental income — 97,798 — 97,798

Total revenues 400,453 97,798 — 498,251

Hotel operating expenses 318,266 — — 318,266

Other operating expenses — 3,511 — 3,511

Depreciation and amortization 55,780 45,734 — 101,514

General and administrative — — 11,293 11,293

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

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

(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 )

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

25,358 48,300 ( 68,569 ) 5,089

Income tax expense — — ( 390 ) ( 390 )

Equity in earnings of an investee — — 2,801 2,801

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

For the Nine Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

Hotels Net Lease Corporate Consolidated

7 unchanged sentences

Transaction related costs — — 887 887

Loss on asset impairment, net 9,483 237 — 9,720

Total expenses 352,951 50,559 11,798 415,308

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

Gain on sale of real estate, net 41,898 — — 41,898

Unrealized gains on equity securities, net — — 49,430 49,430

2 unchanged sentences

Loss on early extinguishment of debt

— — ( 44 ) ( 44 )

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

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

Equity in earnings of an investee — — 4,277 4,277

23,773 37,534 ( 34,916 ) 26,391

Income tax benefit — — 3,780 3,780

Equity in losses of an investee — — ( 4,221 ) ( 4,221 )

Net income (loss) $ 23,773 $ 37,534 $ ( 35,357 ) $ 25,950

As of September 30, 2022

As of March 31, 2023

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended September 30, 2021

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 338,375 $ — $ — $ 338,375

Rental income — 98,724 — 98,724

Total revenues 338,375 98,724 — 437,099

Hotel operating expenses 285,233 — — 285,233

Other operating expenses — 4,437 — 4,437

Depreciation and amortization 66,065 58,098 — 124,163

General and administrative — — 14,231 14,231

Transition related costs — — 3,149 3,149

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

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

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

Interest income — — 203 203

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

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 Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Hotels Net Lease Corporate Consolidated

6 unchanged sentences

General and administrative — — 11,989 11,989

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

Transaction related costs — — 1,177 1,177

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

1 unchanged sentence

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

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

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

Interest income — — 273 273

2 unchanged sentences

Income tax expense — — ( 695 ) ( 695 )

Equity in earnings of an investee — — 50 50

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

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

3 unchanged sentences

Fair Value of Assets and Liabilities

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

The table below presents certain of our assets carried at fair value at March 31, 2023, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

Fair Value at Reporting Date Using

3 unchanged sentences

$ 102,485 $ 102,485 $ — $ —

Non-Recurring Fair Value Measurement Assets:

Assets of properties held for sale (2)

$ 20,553 $ — $ 20,553 $ —

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

(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 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

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, net lease mortgage notes payable and senior notes.

At March 31, 2023 and December 31, 2022, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

March 31, 2023 December 31, 2022

Carrying Value (1)

18 unchanged sentences

444,786 402,057 444,505 387,522

Senior Unsecured Notes, due 2027 at 5.50 %

Net Lease Mortgage Notes, due 2028 at 5.60 %

551,789 589,961 — —

7 unchanged sentences

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

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).

At March 31, 2023 and December 31, 2022, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs).

At March 31, 2023, we estimated the fair value of our net lease mortgage notes using discounted cash flow analyses and current prevailing market rates as of the measurement date (Level 3 inputs).

As Level 3 inputs are unobservable, our estimated value may differ materially from the actual fair value.

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