What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-08 · 284 added, 199 removed, 347 unchanged (58% of the section changed)

40 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Hotel operating revenues $ 404,327 $ 418,984 $ 739,123 $ 716,390

9 unchanged sentences

Other operating income:

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

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

(Loss) gain on sale of real estate, net ( 62 ) 38,851 41,836 44,399

(Loss) gain on equity securities, net ( 593 ) ( 10,059 ) 48,837 ( 20,319 )

Interest income 3,468 1,021 6,254 1,294

2 unchanged sentences

Loss on early extinguishment of debt ( 238 ) ( 791 ) ( 282 ) ( 791 )

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

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

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

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

(Loss) income before income taxes and equity in earnings of an investee ( 6,548 ) 9,630 19,843 ( 108,780 )

Income tax expense ( 5,247 ) ( 473 ) ( 1,467 ) ( 1,168 )

Equity in earnings (losses) of an investee 517 2,193 ( 3,704 ) 1,476

Net (loss) income ( 11,278 ) 11,350 14,672 ( 108,472 )

Other comprehensive income:

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

Other comprehensive (loss) income ( 214 ) 4

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

Equity interest in investee’s unrealized gains 215 46 1 50

Other comprehensive income 215 46 1 50

Comprehensive (loss) income $ ( 11,063 ) $ 11,396 $ 14,673 $ ( 108,422 )

Weighted average common shares outstanding (basic and diluted) 164,902 164,677 164,884 164,672

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

Net (loss) income per common share (basic and diluted) $ ( 0.07 ) $ 0.07 $ 0.09 $ ( 0.66 )

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data)

(dollars in thousands, except share data)

Common Shares Additional

15 unchanged sentences

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 loss — — — — ( 11,278 ) — ( 11,278 )

Equity in unrealized gains of investees — — — — — 215 215

Common share grants 56,000 — — 1,474 — — 1,474

Common share repurchases ( 16,761 ) — — ( 150 ) — — ( 150 )

Common share forfeitures ( 1,400 ) — — ( 2 ) — — ( 2 )

Distributions — — ( 33,089 ) — — — ( 33,089 )

Balance at June 30, 2023 165,483,834 $ 1,655 $ ( 5,739,565 ) $ 4,556,650 $ 2,517,951 $ 2,384 $ 1,339,075

Balance at December 31, 2021 165,092,333 $ 1,651 $ ( 5,635,342 ) $ 4,552,558 $ 2,635,660 $ 779 $ 1,555,306

5 unchanged sentences

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

Net income — — — — 11,350 — 11,350

Equity in unrealized gains of investees — — — — — 46 46

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

Common share repurchases ( 478 )

Common share forfeitures ( 1,600 ) — — ( 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

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

2 unchanged sentences

(dollars in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash flows from operating activities:

6 unchanged sentences

Loss on asset impairment, net 9,005 8,548

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

Equity in losses of an investee 4,221 717

(Gain) loss on equity securities, net ( 48,837 ) 20,319

Equity in losses (earnings) of an investee 3,704 ( 1,476 )

Gain on sale of real estate ( 41,836 ) ( 44,399 )

5 unchanged sentences

Due to related persons ( 3,399 ) ( 14,958 )

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

Net cash provided by operating activities 328,503 59,297

Cash flows from investing activities:

Acquisition of real estate properties ( 165,688 ) —

Proceeds from sale of TA common shares 101,892 —

Proceeds from sale of tradenames and trademarks 89,400 —

Real estate improvements ( 63,562 ) ( 41,098 )

1 unchanged sentence

Net proceeds from sale of real estate 144,959 488,365

Investment in Sonesta — ( 45,470 )

Net cash provided by investing activities 103,960 399,338

3 unchanged sentences

Repayment of senior unsecured notes ( 500,000 ) ( 500,000 )

Repayments of revolving credit facility — ( 200,000 )

Deferred financing costs ( 37,176 ) ( 2,642 )

1 unchanged sentence

Distributions to common shareholders ( 66,179 ) ( 3,302 )

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

Net cash used in financing activities ( 27,258 ) ( 705,948 )

Increase (decrease) in cash and cash equivalents and restricted cash 405,205 ( 247,313 )

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

16 unchanged sentences

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.

At June 30, 2023, we owned, directly and through our subsidiaries, 221 hotels and 763 net lease properties.

Basis of Presentation

13 unchanged sentences

We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE.

The assets of our TRSs were 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 were $ 164,718 and $ 142,542 as of June 30, 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 $ 107,478 and $ 82,454 as of June 30, 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.

4 unchanged sentences

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

We reduced rental income by $ 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.

We increased rental income by $ 2,767 and reduced rental income by $ 1,712 for the three months ended June 30, 2023 and 2022, respectively, and increased rental income by $ 319 and reduced rental income by $ 3,685 for the six months ended June 30, 2023 and 2022, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

Due from related persons included $ 7,522 of straight line rent receivables related to our TravelCenters of America Inc., or TA, leases at December 31, 2022.

TA was no longer a related party as of June 30, 2023.

Other assets, net, includes $ 40,887 and $ 32,247 of straight line rent receivables at June 30, 2023 and December 31, 2022, respectively.

See Notes 5 and 10 for further information regarding our TA leases.

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

2 unchanged sentences

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 $ 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.

We determine percentage rent due to us under our leases monthly, quarterly or annually, as applicable, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned.

We recorded percentage rent of $ 4,449 and $ 385 for the three months ended June 30, 2023 and 2022, respectively, and $ 4,792 and $ 1,141 for the six months ended June 30, 2023 and 2022, respectively.

We had no deferred estimated percentage rent for either the three or six months ended June 30, 2023.

We had deferred estimated percentage rent of $ 2,839 and $ 5,338 for the three and six months ended June 30, 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 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.

For the three and six months ended June 30, 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 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.

At June 30, 2023, we owned 221 hotels with an aggregate of 37,777 rooms or suites and 763 service oriented retail properties with an aggregate of 13,469,478 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 $ 9,694,893 , including $ 13,897 related to properties classified as held for sale as of June 30, 2023.

We made capital expenditures at certain of our properties of $ 65,025 during the six months ended June 30, 2023.

On June 1, 2023, we acquired a 250 -room hotel located in Miami Beach, Florida for $ 165,400 , excluding closing costs of $ 466 .

We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows:

Acquisition Date Location Property Type Purchase Price Land Building and Improvements Furniture, Fixtures and Equipment

June 1, 2023 Miami Beach, FL Hotel $ 165,866 $ 83,200 $ 77,987 $ 4,679

During the six months ended June 30, 2023, we sold 20 properties for an aggregate sales price of $ 157,850 , 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).

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

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

Properties sold during the six months ended June 30, 2023

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

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.

Q2 2023 Net Lease 2 2,384 620 ( 62 )

20 2,526 / 2,384

$ 157,850 $ 41,836

As of June 30, 2023, we had 18 net lease properties with 342,499 square feet and an aggregate carrying value of $ 13,897 classified as held for sale.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

As of August 4, 2023, we have entered into agreements to sell two net lease properties with 39,133 square feet for an aggregate sales price of $ 3,725 .

These pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

We continue to market 20 net lease properties with 358,419 square feet for sale.

We expect the sales of these net lease properties to be completed by the end of the first quarter of 2024.

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

Management Agreements and Leases

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.

As of June 30, 2023, we owned 221 hotels which were included in four operating agreements and 763 service oriented retail properties net leased to 173 tenants.

We do not operate any of our properties.

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

At June 30, 2023, all 221 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 195 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.

At June 30, 2023, we owned 763 net lease properties with 173 tenants, including 176 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

As of June 30, 2023, Sonesta managed 40 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 49.4 % 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.

We acquired one hotel in June 2023, and we and Sonesta added this hotel to our Sonesta agreement.

We sold 65 Sonesta branded hotels during the calendar year ended December 31, 2022, and we sold two Sonesta branded hotels during the six months ended June 30, 2023.

See Note 4 for further information regarding our acquisition and disposition activities.

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, 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 $ 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.

The Sonesta agreement further provides that we are paid an additional return equal to 80 % of the operating profits, as defined therein, after reimbursing owner or manager advances, funding the reserve established for the regular refurbishment of our hotels, or FF&E reserves, and paying Sonesta’s incentive fee, if applicable.

We realized returns of $ 84,899 and $ 77,424 during the three months ended June 30, 2023 and 2022, respectively, and $ 115,136 and $ 80,452 during the six months ended June 30, 2023 and 2022, respectively, under our Sonesta agreement.

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 $ 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.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 54,209 and $ 33,226 during the six months ended June 30, 2023 and 2022, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 3,253 and $ 1,994 , respectively.

Our annual priority return under our Sonesta agreement as of June 30, 2023 was $ 346,894 .

We owed Sonesta $ 4,972 and $ 8,889 for capital expenditures and other reimbursements at June 30, 2023 and December 31, 2022, respectively.

Sonesta owed us $ 30,017 and $ 2,975 in owner’s priority returns and other amounts as of June 30, 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.

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.

No FF&E escrow deposits were required during either of the three or six months ended June 30, 2023 or 2022.

Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing programs and third-party reservation transmission fees of $ 32,121 and $ 32,682 for the three months ended June 30, 2023 and 2022, respectively, and $ 58,257 and $ 56,479 for the six months ended June 30, 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 $ 341 and $ 269 for the three months ended June 30, 2023 and 2022, respectively, and $ 548 and $ 556 for the six months ended June 30, 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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

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.

As of June 30, 2023 and December 31, 2022, we had advanced $ 48,490 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.

2 unchanged sentences

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 .

As of June 30, 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 June 30, 2023, we are to be paid an annual owner’s priority return of $ 12,781 .

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We realized returns of $ 4,388 and $ 4,525 during the three months ended June 30, 2023 and 2022, respectively, and $ 6,711 and $ 6,388 for the six months ended June 30, 2023 and 2022, respectively, under our Hyatt agreement.

During the six months ended June 30, 2023 and 2022, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 454 and $ 11,936 , respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 27 and $ 716 , respectively.

Radisson agreement .

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 .

As of June 30, 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 $ 10,691 .

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.

We realized returns of $ 1,799 and $ 3,020 during the three months ended June 30, 2023 and 2022, respectively, and $ 3,364 and $ 3,474 for the six months ended June 30, 2023 and 2022, respectively, under our Radisson agreement.

During the six months ended June 30, 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 Radisson made $ 140 of quarterly guaranty payments to cover the shortfall.

The available balance of the guaranty was $ 21,860 as of June 30, 2023.

During the six months ended June 30, 2023 and 2022, we incurred capital expenditures of $ 4,749 and $ 298 , respectively, for the hotels included in our Radisson agreement which resulted in an aggregate increase in our contractual owner’s priority returns of $ 285 and $ 18 , respectively.

Marriott agreement .

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.

As of June 30, 2023, we sold all 16 hotels previously managed by Marriott International, Inc., or Marriott.

We realized net operating losses of $ 2,762 during the six months ended June 30, 2023 and realized returns of $ 3,842 and $ 3,593 during the three and six months ended June 30, 2022, respectively, under our management agreement with Marriott.

We did not incur capital expenditures for any of the hotels included in our management agreement with Marriott during the six months ended June 30, 2023 or 2022.

IHG Agreement.

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

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

We realized returns of $ 1,517 and $ 1,208 during the three months ended June 30, 2023 and 2022, respectively, and $ 2,280 and $ 1,337 for the six months ended June 30, 2023 and 2022, respectively, under our management agreement with IHG.

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

Net lease portfolio

As of March 31, 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.

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.

Our TA leases require TA to pay us percentage rent based upon increases in certain sales.

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

We 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.

However, TA is required to maintain the leased travel centers, including structural and non-structural components.

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

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

As of June 30, 2023, we owned 763 service oriented retail net lease properties with 13,469,478 square feet with leases requiring annual minimum rents of $ 375,781 with a weighted (by annual minimum rents) average remaining lease term of 9.3 years.

Our net lease properties were 96.1 % occupied and leased by 173 tenants operating under 134 brands in 21 distinct industries.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(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 .

TA is our largest tenant, representing 29.2 % of our total historical real estate investments as of June 30, 2023.

We lease to TA a total of 176 travel centers under five leases that expire in 2033, subject to TA’s right to extend those leases, and require annual minimum rents of $ 254,000 as of June 30, 2023.

We recognized rental income from our TA leases of $ 65,260 and $ 62,186 for the three months ended June 30, 2023 and 2022, respectively, and $ 127,401 and $ 124,269 for the six months ended June 30, 2023 and 2022, respectively.

Rental income was increased by $ 2,555 and reduced by $ 3,241 for the three months ended June 30, 2023 and 2022, respectively, and reduced by $ 686 and $ 6,585 for the six months ended June 30, 2023 and 2022, respectively, to record the scheduled rent changes on a straight line basis.

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.

As of June 30, 2023 and December 31, 2022, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 9,076 and $ 30,764 , respectively, included in other assets, net and due from related persons, respectively, in our condensed consolidated balance sheets.

Until May 15, 2023, our TA leases required TA to pay us percentage rent based upon increases in certain sales.

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

We recognized percentage rent of $ 3,507 during the three and six months ended June 30, 2023 under our TA leases.

We did not recognize any percentage rent for the three or six months ended June 30, 2022.

We had no deferred percentage rent for either the three or six months ended June 30, 2023.

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

On May 15, 2023, BP Products North America Inc., or BP, acquired TA pursuant to a merger, or the TA Merger, for $ 86.00 per share in cash.

At the effective time of the TA Merger, we entered into amended and restated lease agreements, or the A&R Leases, for 176 of our travel center properties.

Under the A&R Leases, the aggregate annual minimum rent due to our applicable subsidiaries is $ 254,000 , with annual 2 % increases throughout the initial term of 10 years and any of the five 10-year extension options that may be exercised, and there is no percentage rent requirement.

TA prepaid $ 188,000 of rent under the A&R Leases at the effective time of the TA Merger and TA will receive monthly rent credits totaling $ 25,000 per year over the 10 -year initial term of the A&R Leases.

In addition, we received $ 89,400 for certain tradenames and trademarks associated with TA’s business that we sold to TA in connection with the TA Merger, which amount equaled our net book value for those tradenames and trademarks.

TA is required to maintain the leased travel centers, including structural and non-structural components.

In addition, TA has 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 entered into at the effective time of the TA Merger, or the A&R Guarantees, BP Corporation North America Inc.

guaranteed payment under each of the A&R Leases.

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

Following the TA Merger, TA ceased being a related party.

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

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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 $ 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 recognized rental income from our net lease properties (excluding TA) of $ 34,192 and $ 34,607 for the three months ended June 30, 2023 and 2022, respectively, which included $ 212 and $ 1,530 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 66,464 and $ 68,927 for the six months ended June 30, 2023 and 2022, respectively, which included $ 1,005 and $ 2,901 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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 $ 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We recorded reserves for uncollectable amounts and decreased rental income by $ 1,813 and $ 5,353 for the three and six months ended June 30, 2023, respectively, based on our assessment of the collectability of rents.

We reduced our reserves for uncollectable amounts and increased rental income by $ 160 and $ 667 for the three and six months ended June 30, 2022, respectively, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $ 11,187 and $ 7,697 as of June 30, 2023 and December 31, 2022, respectively, included in other assets in our condensed consolidated balance sheets.

Other Investments

Equity method investment

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

As of both June 30, 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 both March 31, 2023 and December 31, 2022, our investment in Sonesta had a carrying value of $ 108,182 and $ 112,617 , respectively.

As of June 30, 2023 and December 31, 2022, our investment in Sonesta had a carrying value of $ 108,913 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 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 amortization of the basis difference of $ 65 in each of the three months ended June 30, 2023 and 2022 and $ 130 in each of the six months ended June 30, 2023 and 2022.

We recognized income of $ 582 and $ 2,258 related to our investment in Sonesta for the three months ended June 30, 2023 and 2022, respectively, and losses of $ 3,574 and income of $ 1,606 for the six months ended June 30, 2023 and 2022, respectively.

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

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

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

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

We reduced hotel operating expenses by $ 621 for each of the three months ended June 30, 2023 and 2022, respectively, and $ 1,242 for each of the six months ended June 30, 2023 and 2022, respectively, for amortization of this liability.

As of June 30, 2023 and December 31, 2022, the unamortized balance of this liability was $ 33,721 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.

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

Investment in equity securities

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.

The TA Merger occurred on May 15, 2023.

We received $ 86.00 in cash for each TA common share that we owned, or a total of $ 101,892 , as a result of the TA Merger.

As of May 15, 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 $ 101,893 and $ 53,055 as of May 15, 2023 and December 31, 2022, respectively.

Our historical cost basis for these shares was $ 24,418 as of both May 15, 2023 and December 31, 2022.

We recorded losses of $ 593 and $ 10,059 for the three months ended June 30, 2023 and 2022, respectively, and a gain of $ 48,837 and a loss of $ 20,319 for the six months ended June 30, 2023 and 2022, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

See Notes 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.

SERVICE PROPERTIES TRUST

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(dollars in thousands, except share data)

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 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 March 31, 2023.

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 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 principal debt obligations at June 30, 2023 were:

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

and (2) $ 609,548 aggregate outstanding principal amount of net lease mortgage notes.

We had no amounts outstanding under our revolving credit facility as of June 30, 2023.

On June 29, 2023, we entered into an amended and restated credit agreement, or our credit agreement, governing our $ 650,000 secured revolving credit facility.

This new facility replaces our prior $ 800,000 secured revolving credit facility, which had a maturity date of July 15, 2023, and is available for general business purposes, including acquisitions.

We can borrow, repay, and reborrow funds available under the new facility until maturity and no principal repayments are due until maturity.

The maturity date of the new facility is June 29, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further extend the stated maturity date of the new facility by two additional six-month periods.

Interest payable on drawings under the new facility is based on the secured overnight financing rate, or SOFR, plus a margin ranging from 1.50 % to 3.00 % based on our leverage ratio, as defined in our credit agreement, which was 2.50 % as of June 30, 2023.

Our obligations under the new facility are secured by 69 properties, including 66 hotels and three net lease properties, with an undepreciated book value of $ 1,520,935 as of June 30, 2023.

We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding.

As of June 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.64 %.

We had no borrowings outstanding under either the new or prior facility for either the three or six months ended June 30, 2023.

The weighted average annual interest rate for borrowings under the new and prior facility was 3.25 % and 3.05 %, respectively, for the three and six months ended June 30, 2022.

As a result of the amendment and restatement, we recorded a loss on early extinguishment of debt of $ 238 during the three and six months ended June 30, 2023, which represented the write-off of certain unamortized issuance costs.

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.

We believe we were in compliance with the terms and conditions of our debt agreements as of June 30, 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.

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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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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.

The notes are non-recourse and are secured by 308 net lease retail properties owned by the Issuer.

The current leases relating to those properties require annual minimum rents of $ 65,490 , and had a gross book value of $ 754,916 as of June 30, 2023.

Our net lease mortgage notes are summarized below:

Note Class Principal Outstanding as of March 31, 2023

Note Class Principal Outstanding as of June 30, 2023

Coupon Rate Term (in years) Maturity

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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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 44 in the six months ended June 30, 2023, which represented the unamortized issuance costs related to these notes.

Shareholders' Equity

On June 13, 2023, in accordance with our Trustee compensation arrangements, we awarded 7,000 of our common shares, valued at $ 8.96 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to each of our eight Trustees as part of their annual compensation.

Share Purchases

During the six months ended June 30, 2023, we purchased an aggregate of 21,732 of our common shares, valued at a weighted average share price of $ 9.03 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.

Distributions

During the three months ended March 31, 2023, we declared and paid regular quarterly distributions to common shareholders as follows:

During the six months ended June 30, 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

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 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.

April 13, 2023 April 24, 2023 May 18, 2023 0.20 33,089

$ 0.40 $ 66,179

On July 13, 2023, we declared a regular quarterly distribution to common shareholders of record as of July 24, 2023 of $ 0.20 per share, or approximately $ 33,089 .

We expect to pay this amount on or about August 17, 2023.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Business and Property Management Agreements with RMR

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

(1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, excluding properties leased to TA, the office building component of one of our hotels and major renovation or repositioning activities at our hotels that we may request RMR to manage from time to time.

We recognized net business management fees payable to RMR of $ 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.

(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, 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.

Effective as of the completion of the TA Merger, we and RMR amended our property management agreement to include properties that we lease to TA.

We recognized net business management fees payable to RMR of $ 8,287 and $ 9,305 for the three months ended June 30, 2023 and 2022, respectively, and $ 16,672 and $ 19,183 for the six months ended June 30, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2023 and 2022, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 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.

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

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 recognized property management and construction supervision fees payable to RMR of $ 1,846 and $ 1,235 for the three months ended June 30, 2023 and 2022, respectively, and $ 3,258 and $ 2,898 for the six months ended June 30, 2023 and 2022, respectively.

Of those amounts, for the three months ended June 30, 2023 and 2022, $ 937 and $ 1,014 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 909 and $ 221 , respectively, of construction and supervision fees were capitalized for the three months ended June 30, 2023 and 2022.

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

For the six months ended June 30, 2023 and 2022, $ 1,882 and $ 2,032 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,376 and $ 867 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

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

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

We reimbursed RMR $ 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).

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We reimbursed RMR $ 1,116 and $ 685 for these expenses and costs for the three months ended June 30, 2023 and 2022, respectively, and $ 2,119 and $ 1,439 for the six months ended June 30, 2023 and 2022, respectively.

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

Related Person Transactions

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

As of the effective time of the TA Merger on May 15, 2023, TA is no longer a related person to us.

RMR is a majority owned operating subsidiary of RMR Inc.

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and an officer and employee of RMR.

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

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

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

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

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

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

Other officers of RMR, including Mr.

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

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

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 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.

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

RMR provides management services to us and, until the TA Merger, provided services to TA, and Mr.

Portnoy, until the TA Merger, also served as the chair of the board of directors and as a managing director of TA and, as of immediately prior to the TA Merger, 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, and investments with TA.

Sonesta is a private company.

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and as our Secretary.

RMR also provides certain services to Sonesta.

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

RMR also provides services to Sonesta.

As of June 30, 2023, we owned approximately 34 % of Sonesta and Sonesta managed 195 of our hotels.

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

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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.

3 unchanged sentences

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

During the three months ended March 31, 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.

During the three months ended June 30, 2023, we recognized income tax expense of $ 5,247 , which includes $ 2,884 of state taxes and $ 2,363 of foreign taxes.

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

During the six months ended June 30, 2023, we recognized income tax expense of $ 1,467 , which includes $ 587 of state taxes and $ 880 of foreign taxes.

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

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 March 31, 2023

For the Three Months Ended June 30, 2023

Hotels Net Lease Corporate Consolidated

7 unchanged sentences

Transaction related costs 473 415 43 931

Loss on asset impairment, net — 9,005 — 9,005

Total expenses 363,022 55,744 11,633 430,399

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

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

Gain (loss) on sale of real estate, net 20 ( 82 ) — ( 62 )

Loss on equity securities, net — — ( 593 ) ( 593 )

Interest income 21 23 3,424 3,468

4 unchanged sentences

41,346 32,214 ( 80,108 ) ( 6,548 )

Income tax benefit — — 3,780 3,780

Income tax expense — — ( 5,247 ) ( 5,247 )

Equity in earnings of an investee — — 517 517

Net income (loss) $ 41,346 $ 32,214 $ ( 84,838 ) $ ( 11,278 )

For the Six Months Ended June 30, 2023

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 739,123 $ — $ — $ 739,123

Rental income — 193,865 — 193,865

Total revenues 739,123 193,865 — 932,988

Hotel operating expenses 608,666 — — 608,666

Other operating expenses — 8,277 — 8,277

Depreciation and amortization 106,834 87,776 — 194,610

General and administrative — — 23,331 23,331

Transaction related costs 473 415 930 1,818

Loss on asset impairment, net — 9,005 — 9,005

Total expenses 715,973 105,473 24,261 845,707

Gain (loss) on sale of real estate, net 41,918 ( 82 ) — 41,836

Gain on equity securities, net — — 48,837 48,837

Interest income 51 25 6,178 6,254

Interest expense — ( 17,757 ) ( 146,326 ) ( 164,083 )

Loss on early extinguishment of debt — — ( 282 ) ( 282 )

Income (loss) before income taxes and equity in earnings of an investee 65,119 70,578 ( 115,854 ) 19,843

Income tax expense — — ( 1,467 ) ( 1,467 )

Equity in losses of an investee — — ( 3,704 ) ( 3,704 )

Net income (loss) $ 65,119 $ 70,578 $ ( 121,025 ) $ 14,672

As of March 31, 2023

As of June 30, 2023

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Hotels Net Lease Corporate Consolidated

7 unchanged sentences

Transaction related costs — — 743 743

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

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

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

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

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

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

Loss on equity securities, net — — ( 10,059 ) ( 10,059 )

Interest income — — 1,021 1,021

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

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

Income (loss) before income taxes and equity in earnings of an investee 74,743 47,944 ( 113,057 ) 9,630

Income tax expense — — ( 473 ) ( 473 )

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

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

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

For the Six Months Ended June 30, 2022

Hotels Net Lease Corporate Consolidated

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

Rental income — 193,151 — 193,151

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

Hotel operating expenses 615,537 — — 615,537

Other operating expenses — 5,650 — 5,650

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

General and administrative — — 24,452 24,452

Transaction related costs — — 1,920 1,920

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

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

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

Loss on equity securities, net — — ( 20,319 ) ( 20,319 )

Interest income — — 1,294 1,294

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

Loss on early extinguishment of debt

— — ( 791 ) ( 791 )

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

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

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

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

As of December 31, 2022

1 unchanged sentence

Total assets $ 3,882,701 $ 3,376,295 $ 229,195 $ 7,488,191

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

Fair Value of Assets and Liabilities

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.

The table below presents certain of our assets carried at fair value at June 30, 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

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

Recurring Fair Value Measurement Assets:

Investment in TA (1)

Non-recurring Fair Value Measurement Assets:

Assets of properties held for sale (1)

$ 13,741 $ — $ — $ 13,741

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

(1) We recorded a loss on asset impairment, net of $ 9,005 during the three months ended June 30, 2023, to reduce the carrying value of 16 properties in our condensed consolidated balance sheet to their estimated fair value less costs to sell (Level 3 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, 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

At June 30, 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:

June 30, 2023 December 31, 2022

Carrying Value (1)

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

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).

At June 30, 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 June 30, 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